Still plenty to do there, but would need to make much less in passive income. So, outlays for non-premium expenses add another 10k or so. Weekends and summers are for horse plays, now even if our kid wants to do free play on weekends or in the summer, all his friends are in some athletic academic music program. The $1 million in depreciation reduces the $1 million cash . Thats $57/day for food for 3 people! No Dining out? This level gives one the flexibility to do what you want in terms of traveling, eating out, nice cars, etc. They've made many friends from the club. We dont have any kids yet but anticipating an additional $2k/mo spend since wife will be stay at home which would bring our annual budget back up to 90k or so. The total cost for 4 years is expected to be $400,000 plus other misc expenditure. With such a large nest egg, thats no longer risk, so theyre essentially just paying the insurance the actuarily disadvantageous premiums just so their kids can be filthy stinking rich in the off chance they die early, which they should be doing everything in their power to prevent given their abundant time and resources to care for their own health. My goal is not to leave a ton of money to heirs. After spending 30 years working in finance, writing about finance, and studying finance, I'm certain you will loveBuy This, Not That. Having spent a few years in other lower cost regions of the US, I can say that there are great places to live that are far cheaper than the great coastal cities. I tell them it depends on multiple factors including their age, longevity, willingness to return to work, investment risk tolerance, social security income, health costs, and monthly expenses. If they spend less money on childcare, they'd free up an extra $5,000 $10,000 a year. Sam, life insurance is used for replacing your future earned income in the event you pass away unexpectedly. This bring the total monthly expense to ~10400. I personally prefer Upper Manhattan as its hillier, more diverse, has more parks, and is closer to the Hudson Valley; there are plenty of apartments listed for rent and for sale at the numbers I quoted. We will love our kids more than anything else in the world. Obviously, I wouldnt want to deny the kids good activities for their enrichment, but with both parents retired early, I feel like a certain amount of lessons, going to movies, etc. could be offset by going to the park, working out at home, watching Netflix, etc. Start adding those factors to the budget and you may find that you end up with a very different plan, but one that actually works and leads to greater happiness. Kids are very expensive I know because I had one two years ago and I see how my budget has exploded. Health insurance is clearly one of the largest and most necessary expenses early retirees must consider. Thanks for sharing. Please let me know if this doesnt make sense. Would love to hear an interview for Houston because I always thought Houston was pretty inexpensive compare to the coastal giants. Los Angeles does have some of the best food variety in the country. For example, if we assume 4% real returns instead of 6% nominal (keeping the same investment fees and tax drag), this couple would need to save about 50% more or $3,300 each per month (for a total of $6,600 monthly combined) to reach the equivalent of $5 Million in today's dollars by age 55. If theyre experimenting with this new lifestyle for only a few years, they can afford to draw down 4, 5, even 6% per year from their principle and only lose a very small portion of their actual net worth We even made bread, pastries and cakes. 3. Also, high net worth investors often have long-term investments they want to buy and hold, or are illiquid. So thats about $113,000 a year in gross income that is required for both to retire early, or $2.8M at a 4% rate of return. In the end, if your goal is FIRE then its not the normal path so you need to be creative and flexible most of all its a state of mind If you want the rat race then keep working or get crazy rich. In short, a more realistic budget even in a place like Florida would be half of whats listed here even with $24k/year for kids schools (which I think college is over-valued now anyway and getting worse). With a lower cost home and a working wife, $3.6M in liquid assets should be enough. At least give them credit for paying cash for a car. Everything is cheap when the kid is 3. Our family of 4 spends 1/2 that including take out and eating out. I certainly faced it when I moved my household from Silicon Valley to LA, and again from LA to Atlanta both times within mini-retirements. It turns out Da Vinci had intermittent strabismus. At some point after 59 they are going to be able to take $ out of their taxfree accounts. Our number is lower, but we are also planning to retire older, our mid-50s, and our kid will be older as well. Now here comes the taxman. I would guess at least a few of the cant believe they spend so much naysayers get similar support. For example, my food costs are at 1,000 a month for a family of three, my gym membership is 130, I dont have a mortgage, and my property taxes are lower (bought early). This means that your net income, or salary after tax, will be $55,578 per year, $4,632 per month, or $1,069 per week. I think $5 million is a good number. Most times, you dont want to stand out. How the heck do you have $10M in your 30s???? Weve already spent four hundred and seventy thousand of Simons salary, which leaves just thirty thousand for everything else. And you dont plug in for major home repairs so theres that to consider . Kids can be very cruel. Pretty neat. In fact, its considered the normative. She LOVES her job and has no desire to retire.. Stay on the righteous path and think long and hard before making any financial transaction! We dont have a mortgage on our $600,000 home but our taxes are approximately $15,000. San Francisco is a pretty laid back city (or at least it was five years ago when I lived there). If youd like to volunteer a guest post with your numbers, city, story etc to fill out these cities, let me know. Any one of these line items by itself is no big deal, but such a collection of recurring expenses is what upper-class families spend for the convenience of being able to enjoy these things while working. In these cities housing is easily north of 1m. They will remember when the after school program messed up and sent them on the bus to an empty house twice in first grade. 4) The total net worth doesnt account for home which presumably could be converted to stock or cash at some point. Wow, $2K/month! They are one of the largest and oldest platforms having bee found in 2012. I had many friendships that still in touch since primary schools (even though I live in the US now) because we spent so much time without parents around. And no Florida is not like California. The ability to keep your nest egg growing while bringing in an income doing something you love results in a lot more freedom than the budget allows in this post. Youre crazy, or seriously misinformed if you think Manhattan is cheaper than SF. Keep up the great work! The hippies and techies are not very materialistic. I personally want to be in my childrens lives for at least a 2-4 hours everyday on average until they are 18, after that Id be lucky to have more than an hour a month! Yes, youre missing the opportunity to take advantage of the 529 plans tax deferral compounding over the next 17 years. I thought that I could retire early with little risk given I pay $1800/mth ( at 3.5% ) with only $280K left on my mortgage and $700 property taxes, which is cheap by the standards here, especially given the example you used above. I put my two kids through them (as well as being a grad myself back in the day). 1) Healthcare young, healthy and lots of wealth why pay for a Platinum plan? The older they get, and now that they have a daughter, the better value the policy is for the set premium. 1.2 Insurance Vehicles, house Im not judging their lifestyle, just criticizing the framework for analyzing it. I found its one thing to accumulate a lot of money, and its another thing to decide to no longer keep accumulating a lot of money. Factor in that along with the standard deduction, and you greatly reduce your tax liability. Do they need to maintain the same residence with one fewer person? Yes, you could potentially earn a higher rate of return than 4%, but when you're counting on only your investments to support a family, it's better to have a more conservative portfolio. One of SFs good qualities. If you make $55,000 a year living in the region of California, USA, you will be taxed $11,676. Theres the buffer for a second child, drawn-out stock market blahs, and/or building up against child health issues or parent health issues. Salary Calculator Results. Additionally I have thought of starting a side business and growing that as a retirement business, having employees run it while I work occasionally. Am I missing some sort of tax benefit that changes the math? While we owe the communist country more than $800 billion, our government sent nearly $500 million to China to pay for everything from poetry projects to dangerous research on . My comment was about people choosing to spend a good chunk of their income on food delivery and child assistance when they both stay home with one child, and then claiming that they barely have enough to make ends meet. 0. This couple is delusional. We are 31 and worth ~$1m. Great post! But, we know that our time spent with him will make him a more loving, kind, and intelligent person going forward. The average tax rate peaks at 25.1 percent for those making between $1.5 million and $2 million. Im having trouble understanding why any one child would need $600k for their college education. You picked a great time to retire though, I retired in 2007 right before the financial crisis, which makes me somewhat more conservative. Home repairs (not improvements) 2) agree with poster from Maryland the big coastal cities are not the only ones that offer diversity. I helped at the local preschool. Sounds great. LOL !!!! One might be able to retire comfortably on something far less (location being a key factor) but one really couldnt consider themselves rich or fully/completely financially independent until around this amount in my opinion, Check out this related post: https://www.financialsamurai.com/are-you-a-real-millionaire-3-million-new-1-million/. Hi Sam, I did some research on this before so I thought I would provide some links. Lets say they pull 50 out, well thats 1.25M less they need in their investments leading to a 3.75M nest egg. Ive been a reader for a few years now and felt compelled to comment on this post. Its just a completely different world. How to avoid paying an inheritance tax . Your average tax rate is 20.5% and your marginal tax rate is 28.7%. At the risk of going all Suze on your readers, I will just say the longer I live the more I think we spend a lot and cant predict many of lifes changes. Then say you have two kids, and you want to send them to proper schools. Lots of people live for a lot less in the LA area. On the other days, they go to the local science museum, where they have an annual family membership for $150. I spend less than you and have a significantly higher net worth, but I am still watching the budget. We have a new vehicle (with the latest safety features for the baby) and an 11-year old vehicle. One thing under-estimated was child activities as they get older, club sports run $100-$300 per month when they are teens and the medical plans have high deductibles with HSA which forces an extra emergency fund. Id like to know if you ended up cashing out or riding further. You may think that is ridiculous, but even if you want to pay highest, $16k per year is enough. Okay, Ill finally bite and add a comment. It's also become a national pastime to hate the rich, no matter how hard or long they studied in school, no matter how many hours they've worked a day, no matter how many risks they've taken to provide a better life for their family, and no matter how much in taxes they pay. The phaseout also applies to the new $500 credit for other dependents.. Paid off her loans last year and quit. Good to hear fellow SAHD! The one area I believe is very underestimated is the fuel and maintenance of the vehicle. I just believe they might actually be happier in the long run, ironically, if they werent quite so focused. We spend about $225,000. Particularly when we can very comfortably afford to live the same lifestyle as others around us. Lastly, if the couple has $6m in assets do they really need to do a 529?. The 529 is a bit trickier to dismiss because technically, those funds are earmarked for upcoming expenses, but ultimately, thats really a finite expense per child, not a permanently recurring expense, and theyre just front-loading the savings for it. I have to be honest. I do hope others read your feedback to get more perspective. Drowning is one of the leading causes of accidental deaths for children under 5. I live in a blue zone and my costs dont begin to compare to someone who lives in San Fran or LA. Wife is SAHM. Take the plank out of your own eye before you remove the speck from your brothers. This gave me maximum social security and ability to max out my 403b. Are you a stay at home dad? Yes I do agree that people seem to overemphasize one part of the childhood over the other and its a bit of a futile argument. Its interesting, but Ive NEVER thought about it being painful to not get my wife the finest XYZ b/c we have money. We have planned for working wife to retire next August. Santa Monica is very expensive. Our big expenses are private schools, health insurance, financial fees, and vacations. If we are using anecdotes, I will take the other end. I could have a killer retirement on 1.5m. Its a heck of a lot cheaper. How are you going to put food on the table and clothe your babies with that? It is almost as if the state governments are trying everything in their power to incentivize successful people with money to leave the state. This is why I dont get the leanfire and Mr MM crowd. Youve got to do what you feel comfortable doing. Another thing worthwhile is getting affordable term-life insurance to protect your loved ones and dependents. A more conservative yield or appropriate withdrawal rate is 3%. Once I quit work to stay home with our first child, I decided I could still contribute to our household budget by controlling our food expenses. I have approximately $240,000 in passive income after taxes. After 40 years as a teacher, and enjoying every moment, I retired at 77. Second, learn to objectively evaluate an opposing thought. You can profile us, though I think my husband may not like it! Others made comments that echo my thoughts. She notices nice handbags, fancy shoes, etc. So, I would NEVER buy in Tribeca, or anywhere downtown, or much of the East Side because its in a flood zone and I like to live above water. Life cannot revolve entirely around a child. There is understandably also a lot of pushback against diversity if you are white because it takes away what youve always known. If they could countenance moving to a LCOL area, they can eliminate the mortgage entirely by buying a nice $400k mansion. I believe your vision is clouded here by living in one of the three hubs in the US with the highest cost of living. Perhaps learning to cook and mow the lawn is more appropriate for kids over 3, or maybe over 5? There are also lots of 2 bedrooms for well under a million, but I agree thats pricey. How about private lesson? IE we bought a forester and I believe you bought an x5? Keep up the great work and enjoy the time with your son. Youve essentially set your kid up to fail in my opinion. Finally, I think that the landscaping cost for as 3 bed/2ba house should be nowhere near 150 month simply because the yard size cant possibly require that kind of maintenance. When family and friends are conveniently located in a low cost rural area I think you have an inherent advantage in the early retirement game, but of course that isnt something you get to decide, thats much more a matter of fate. Im paying ~2.5% in New York and there are other villages nearby that are 3% or so in property taxes plus the 6% income tax. What is the hourly rate for babysitting childcare in TX? The reason why your health care cost is so cheap is because your employer is paying for it dummy. Wouldnt that be the best of both worlds? In CA, prop 13 will help you long term. Our spending budget is $7k/month or $84k/year. Lets call a spade a spade and admit theyre living an above middle class lifestyle. Clearly not FI yet, but when I get there in a 7ish years, my goal is to have about 15% of our yearly post-tax expenses budgeted towards vacations. If you want to buy in that range/size, you gotta come live with the poor folk like me in picfair village :). 2 bdrms in the building start at $8k. They can use this 800 dollars*12 months* 12 year from age 6 and will have ~120 k cash. We have a son and a daughter who is an RN. Another 500,000 to my other best friend I know is struggling. Medicare covered most of my costs. I just assumed they were working. Were a family of 3 (one kid age 15) and living in bay area, even though we spend ~$2K/month for tutoring, we dont expect that to come down after the kid goes to college, because it will be replaced by healthcare premium. The one line item that I thought was low was vacations. Make those two tweaks and Im seeing that you can probably get by on ONLY $3,750,000 and keep the same budget (Ill shoot you my spreadsheet if youd like). In my case, Id rather pay $5k per month for a 1-bdrm in a large vibrant coastal city than live for free in the midwest. State income tax is 0%, versus 13% in CA, but no way could we make the same income. Before we had children, I just went grocery shopping without looking at weekly ads. Nice job saving to give your daughter a big head start Paper Tiger! Being a Millionaire was someone who was rich back in the day, but adjusting for inflation effects, a rich person (a millionaire) just after WWII, now equates to ~ $10Mil in todays dollars. Private grade schools and private universitiesgive financial aid to families who make $100,000 a year or less per child. The trouble is that with the risks, it is never enough. Their expenses spent on kids will only GO UP! Shopping is mostly groceries and partially an untamed Amazon habit. My parents live overseas and this is the way it works for them. that said I dont spend more than I make, invest while I can without sacrificing life quality. Having lived in both southern and northern cal, I completely understand. The reason is if they do not, they may not be able to play at high school varsity teams. LA is just too expensive. That said, stay at home parents paying for childcare seems out of line. And to answer your next questionwere waiting 4 years for the two older to kids to hit college and I vest. And I know I cant count on that growth every year, as in 2022. Biggest factors ended up being the weather and the diversity we had grown to love. One other comment this couple, with their combined income, were high earners. This will be a new one for those doing their 2018 taxes in 2019 since the income threshold was much lower in the past. $5M @ 4% with ONE kid is easy peasy. Moreover, for married couples, this amount doubles, so a couple can leave up to $23.4 million to their heirs tax-free. As someone who owns property in both cities, its not even close. I understand that some people might be yard-work averse but that seems like a very impractical expense at a cost of 1800 per year. I would love to hear other peoples thoughts on this. My taxes are 1/3 his in my million dollar home because of prop 13. Their household net worth is roughly 5m to 10m (usd). I have a read a few of these posts you have done and I find it eye opening and also wonder if it is all real or there is some poetic license built in to get a reaction? Even a modest 14k/year will set them up wherever they want to go after 529 returns over 18 years, even assuming they have to pay for the full ride without assistance. How the Mega Millions and Powerball lotteries work Here's why: Millions in lottery winnings will push you into the top federal income tax bracket. J&L have been thinking about upgrading to a remodeled house closer to 2,500 sqft. Therefore, investing in real estate to capture rising rents and properties prices is a wise idea. $5mm is bare minimum, $10mm you have some luxuries but still must watch the budget, $15mm you begin to move into the zone of a rich lifestyle, but in NYC its even higher, maybe $20mm. Im just saying its really not that simple as a minority. After about age five, the neural pathways that go from the brain to the eyes tend to hardwire. I sense that youre instinctively reacting to $5MM being outrageous and that Andy and Sam are way off base. Maid service alone is half a Mil per year, what with the mandatory standard minimum of 5 bathrooms, 3 rec rooms (billiards, arcade, shooting range), and 3 patios (including pool and tennis courts). and 20k for groceries? That could be true regarding help, but in our situation shes (me too but I defer to her on in house decisions) not comfortable with someone other than family watching the kid before they learn to speak. Dont knock NYC publics. If their nest egg is to last a lifetime, I would suggest caution when borrowing money for a mortgage and investing that capital in the market. -1560: Life insurance for what? How said for my kid, whose parents and grandparents are born and raised Californians and homeowners paying lots of taxes, and she probably wont even get the benefit of going to one of those schools. Even if I one day quit working actively and just manage the business/real estate/investments, I dont consider it RE. Come on, they can easily slash this food budget by 40%. I will add that while HCOL areas do have incremental costs, housing is the big one. My wife and I live in Oxnard California, a couple miles from the Ocean. Thats a big difference! You could get Affordable Care Act subsidies if your household income is below a certain threshold. It might not seem risky in the midst of a 10 year bull market. If I want mild weather , I will move to North East TN, or Ajijic , Mex and Live like a King. Youll probably die before your turn in the queue if you rely on only the government option. But, the alternative, is for your child to get a lesser education and have less advantages when it comes to getting into a great college. Diversity isnt restricted to skin color, it is found amongst everyone. And my healthcare costs are way higher as this budget has 0 for dental and routine vision care and doesnt account for copays. Their vacation numbers are more conservative than mine. I think the expenses are on target. Lucky me. The main point is that theres a big difference between having barely enough and choosing to spend all of your money. Just check out Upwork.The freelance opportunities are endless. the 4% rule is a guide, not a law. I am 36 year old, my wife is 29 and we have a 6 month old baby. After first child was born and it was very challenging being a stay at home Mom having support from grandparents was incredible. Sure people might take issues with certain categories and yes people can almost always trim their budgets but I agree that life can be very expensive without being extremely extravagant. Almost the entire male the population spends its weekends watching sports. Good stuff. But they're not sure the additional savings would outweigh the decline in their lifestyle. Yes, I live in West LA near the SM border and that is about right. What the heck, thats a terrible deal! And oh yeah, this is California, you can bicycle and hike almost all year long, even during the rainy season. Probably closer to $1.8-2 mil and will be extremely competitive bc of the good school districts in sm and wla. Yet there are a lot of people living in expensive cities, so it has utility on its own. The money for these accounts comes out of your wages after income tax has already been applied. YMMV. Zero income tax, sunny skies, low prop tax, great healthcare (due to all the elderly). living in Houston, no child, regular reader of your blog. At thirty thousand a year each for school fees thats sixty thousand, plus twenty thousand a year each on tutors. Thats another forty thousand a year. But the composition of a $5 million net worth matters as well. I obviously love the work youre doing here and look up to you and what youve done and hope I can do something similar with my life, so again Im sorry for the initial aggressive tone to my first post. Thanks for your honesty on this point. Keep it up! Both my wife and I work for a hospital. Why do they need to send their daughter to day care? Consider selling your stocks at a loss to lower your tax liability. Find something you will enjoy doing that makes some extra money. If they need more, they will change, and so will we. In this scenario were looking at a couple that has no job between them, and they still cant watch the kid(s)? Thoughts on doing part-time work during the time they go to school? Why retire early to spend time with family if youre not with them? Always interested in suggestions as theres only so much space you can put in a headline. On the flip side, my wife and I like living in a city and I like the security that comes with the building we live in.