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Earning $100,000 And Still Broke
LendingTree looked at the 100 largest metropolitan areas in the United States to determine the places where you might not be able to make ends meet on annual earnings of $100,000.
Once the material – and definitely psychological – benchmark of career success, $100,000 doesn’t go quite as far as it used to. Especially in California. However, the monthly budget shortfall pain isn’t limited to Scott Baio’s former home.
The numbers are actually pretty astonishing.
On monthly earnings of $8,333, LendingTree says a family of three ends up in the red in 16 of the nation’s 100 largest metros after paying for typical expenses, such as housing, child care, transportation, and taxes. The research also included $500 a month in savings.
Here’s how the deficits look in these 16 places:
At the same time, LendingTree’s approach to the study leaves more than a little to be desired. But every study has caveats. In this case, they can teach us a thing or two about personal finance, broadly and at the individual level.
Metros area data can be deceiving.
The San Francisco metro area includes expensive Oakland and Fremont. The San Jose metro area includes Santa Clara and Sunnyvale, both expensive hubs in Silicon Valley.
Meantime, you don’t see Manhattan or, more broadly New York City, on this list of 16. This is because Manhattan, which by itself would undoubtedly top this list, is part of the massive New York metro area, popularly known as the Tri-State Area, which actually includes cities in four states (NY, NJ, CT, PA). Some of these cities drag down the averages when considered alongside places with higher costs of living.
Put simply, you’re more likely to thrive on one hundred grand in Pike County, PA, than you are Greenwich Village.
In tomorrow’s Juice, we look at the places – at the metro level – where you’d have the biggest monthly budget surplus on a $100,000 salary.
What is typical?
LendingTree made assumptions, such as the typical cost of housing. But they only focused on one metric – renting a two-bedroom apartment.
At the moment, the median rent on a two-bedroom in San Jose is $3,275. This represents just over 39% of that $8,333 monthly gross income. If you use the standard that a household should spend no more than 30% of its income on housing, this hypothetical family of three has no business renting a standard two-bedroom in San Jose.
Focusing on the recent cost of a two-bedroom apartment also ignores how much more expensive it would be to buy the typical home in San Jose today. As of April, the median list price in that city is just over $1.25 million. Put 10% down and secure a 6.7% interest on a 30-year mortgage and your monthly payment, after taxes and insurance, comes to $9,442.
Literally impossible. Which explains why LendingTree made the methodological choice they made.
On the bright side, the family of three earning 100K who bought their house in, say, 2010 and snagged an interest rate of just over 4% is sitting relatively pretty. Stress relatively because they’re still shelling out in excess of $3,000 a month for housing. But they’re also sitting on a ton of equity with just 17 months (assuming no extra payments) left on their home loan.
The Bottom Line: If you make $100,000 in a place like San Jose you’re skating on razor thin margins. Unless you’re locked into a favorable housing situation or you make meaningful lifestyle sacrifices (like cram a family of three into a below median one-bedroom pad or go without a car), it might be literally impossible to even live in the nation’s priciest metros.
People in this situation have to ask themselves: Why should I struggle? As we’ll detail tomorrow, there are plenty of places where you can live like a king, relatively speaking, on $100,000.
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