Is it worth it to live in a HCOLA? Does the income you can potentially earn outstrip the costs? Maybe.
But the truth is that there are more expenses than just a large mortgage although I'll get to that later.
I hadn't realized all the extra expenses but the small stuff all adds up. Our heating expense are $3k/year, $2500/year electricity, $4800/year for gas for cars. Small differences in price could give us financial freedom somewhere else. Saving on heating and electric bills or even gas could be diverted to paying for an individual health insurance plan.
But what really made me start looking at our financials and future plans was we decided to look at houses. We've been in our townhouse for 9 years now. Bought at the peak in 2005 and we've been happy. As I explained in an earlier post we never expected to stay here past 1 kid. Turns out we're still here with two.
But the truth is we started looking at homes this year. We decided why not make the jump, we've been prudent, paid down our home and increased income. Truthfully we can't afford it. Insane you say? I agree.
We looked at our monthly budget and decided okay we'll increase our payments a little, loosen the purse strings, and cash in some home equity. We bought our current townhouse for $575k and can sell it for $729k low end. With what we owe I estimate we'd have comfortably $300k in equity to put down on our next place or 20% and bank the rest.
Well we started our budget search at $750k. After looking around we realized no way in hell were we going to be able to buy a house. We upped it to $800k and started to finally see homes sort of. We looked a house 0.5 miles from us 3 bd/3ba 1500 sq ft on a 3400 sq ft lot listed at $749k went in a bidding war the first weekend with 10 offers, 3 over $800k and settling at $830k. Um no thank you bidding war.
Well that meant our budget needed to head to $900k to get into the market at an "entry" level home that might need work. So we stepped back.
Trust me as you read you're probably screaming move the f$*% out LAL! You're insane. But my DH I think wanted to cry because he loves his career, he wants to continue at it, but the reality of us living here is a tough pill to swallow. Yes DH loves his job, but even if I go back to work we'd be one job loss away from losing the house if we took on a huge mortgage. And honestly we'd be working for what? To make more money to spend it on housing and living expenses. I pointed out we are constantly chasing a lifestyle that people in lower COL already have. It was time to reevaluate the true financials.
Honestly I wasn't comfortable spending so much and getting so little. I didn't like the idea of DH or potentially me being a clown car commuter where he drove at least 1 hour or at "least" an hour on public transit. What's the point of having a family you don't see? Why should he get up and leave the houose at 7 before the kids do to come home by 6 and maybe see them 1 hour??? Why live so far way to afford a home? Then we'd be better off staying put. But do we want to raise our kids in a townhouse forever? Do we want to yard or indoor playspace?
These questions are what ultimately lead us to the hard decision that we need to move. That we need to reevaluate and restock our life. We need to consider working smarter. We've amassed a pretty sizable pot of money, perhaps it's time to maximize what we can do with it.
The next step? Early retirement...but not quite what you think.
questioning a high cost of living...
May 23rd, 2014 at 12:30 pm
May 23rd, 2014 at 01:57 pm 1400853462
May 23rd, 2014 at 03:03 pm 1400857423
Would DH consider adding a month's unpaid leave to annual vacation to enable the family to rent a short term apartment in Wa. or Or. as base while he does a concentrated search for some type of work? Has DH signed on with the 'headhunter' firms in preferred locations? I presume the pay scale will not be comparable to current earnings and I wonder how that impacts self esteem. Can you all accept a lower standard of living if that becomes necessary?
Alternatively, would you be willing to financially support the family in new location having eliminated the need to commute? Roles would be reversed as DH would be home.
May 23rd, 2014 at 05:21 pm 1400865714
Snafu, i just did a quick peek at our finances and so far this year we've spent $25k on living expenses $2500/month mortgage/HOA, $2500/month spending. This year so far we've made $130k, we've spent $25k on living. We've paid $40k to taxes (SS, Fed, Medicare, State) and we paid more ourselves. So the rest went to savings and stuff like medical premiums. So we've spent less than we paid in taxes.
We are on track to spend around $60-65k/year. Last year we spent around $63k and we paid in taxes on the paystub $49k and another $10k in payments, plus we made around $205k. Again rest was health insurance premiums and savings. So I always say we save 1/3, live on 1/3, and taxes.
I don't think it would be hard to lower our standard of living. If we just eliminated our mortgage we would be living on $30-35k/year. That's not extravagant and could be covered by working. Also by making say $100k, we'd pay almost nothing in taxes compared to now.
I don't claim to live frugally and will post later our spending budget, but I think we live "modestly". Meaning I think we live well below our means and we "frugally" for our income. Before we lived "frugally" when we made less than we pay in taxes now. OUCH. I can barely remember then.
May 23rd, 2014 at 09:20 pm 1400880018
May 23rd, 2014 at 09:58 pm 1400882339
I guess we do the NYC "work hard, play hard" thing. We pay a lot to live here, so might as well take advantage of nice things this place has to offer.
I don't feel like a hamster because we have flexible jobs with a lot of time off (for example, I'm going on a 34 day trip in just 2 months, and will take smaller trips throughout the year). We also both have compressed schedules (10 days in 9) and DH can work from home 1-2 days a week and earns comp time when he goes on travel. So in spite of 2 jobs and long commute, we do see our son.
Also, higher income allows us to max our retirement. So if we choose to move to a lower cost of living later, we will be ahead on retirement. There are trade offs for everything, and so many factors are going into these decisions.
May 25th, 2014 at 12:59 am 1400979565
May 25th, 2014 at 06:45 pm 1401043508
Nika our income is front loaded we'll end up I am going to guess around $200k. I think even with DH's generous sabbatical package (1 month), 6 weeks vacation, half days in the summer, it's too stressful to think of moving further out from his job to afford a house we would "want". We could buy a house where we are, but the truth is it's very pricey and out of our comfort zone financially.
So you have to be making more than us to be maxing out $17.5k, $17.5k, $11k IRAs? If you are spending average $9k/month net then you are looking at $108k plus $46k retirement, then taxes $40k so at least $200k. Because our taxes are eating us up. We're saving a ton, all bonuses and living off of DH's paychecks. But I don't want to be dependent on bonuses and worrying about it not coming in. I never claim to be frugal by the way, I spend way to much and I know it. Way to many luxuries to be truly frugal.
ND chick around $200kish, but yes we are hoping to relocate and either buy with a substantial downpayment or fully paid home. No to keeping job and working remotely. Cannot ever happen, just nature of his work. I think he'll have to switch careers, which is not easy but can happen. Right now he's got a phd and mba without utilizing the mba. I probably need to do the same.
Although the plan is maybe move and work at jobs part-time to make the income to cover our expenses. I budget maybe $60k.
May 27th, 2014 at 04:29 pm 1401208145
You almost got calculations right - but I don't have 401K because I have traditional pension to which I make contributions (and so does my employer).
I think the majority of your frustration comes from uncertainty due to such a large portion of your income (more than 80K?) coming from bonuses. That really makes buying house difficult, because if there is suddenly no bonus, you just can't make it.
We get no bonuses what so ever
May 29th, 2014 at 05:42 pm 1401385356
Not really. It's just too much not matter what we make. You can buy more house if you put more down.
May 29th, 2014 at 06:16 pm 1401387377