A couple in New York City, United States, with assets of about 11 million US dollars and an annual after-tax income of up to 600,000 US dollars, almost struggles to save money due to their massive expenses. They own two properties, run a business, and have five children, yet their cash savings are only around 50,000 US dollars. They even refer to themselves as “rich poor people”.
Living in Brooklyn, the wife, Margo, aged 42, and the husband, Kevin, aged 52, revealed their family’s financial situation in a podcast by American financial expert Ramit Sethi on September 29, highlighting their high income but difficulty in saving money.
According to Sethi’s program, the couple owns two properties with a combined value of around 9 million US dollars. The primary residence is valued at around 6 to 7 million US dollars, while the secondary property is valued at around 2 million US dollars. In addition, Kevin runs a wholesale business valued at around 2 million US dollars, and the couple also holds around 500,000 US dollars in stock investments.
However, most of their wealth is tied up in real estate and the business, which is not readily available as liquid cash to cover bills. Despite their total assets of around 11 million US dollars, their cash savings amount to just about 50,000 US dollars. In terms of income, the couple earns an after-tax income of about 50,000 US dollars per month, equivalent to 600,000 US dollars annually, but the revenue from Kevin’s wholesale business is not stable, and the actual income varies yearly.
One of their most significant expenses is the education costs for their five children. With the children attending private schools and additional expenses for summer camps, the total annually sums up to about 160,000 US dollars, averaging over 13,000 US dollars per month. Housing also poses a substantial burden, as the couple needs to pay around 11,000 US dollars per month for the mortgage, with medical insurance costing around 4,500 US dollars. Just for education, mortgage, and medical insurance, they spend nearly 29,000 US dollars per month, accounting for more than half of their after-tax income.
Additionally, the family spends around 4,000 US dollars per month on groceries, as well as expenses for vehicles, vacations, gifts, and other daily living costs. Previously, the couple also faced a severe mold issue in their house, costing them between 400,000 to 500,000 US dollars, which depleted a significant portion of their funds.
Sethi helped the couple organize their household accounts on the program. Initially, fixed expenses accounted for about 67% of their after-tax income. However, with additional costs like private school tuition and summer camps not previously accounted for, their fixed expenses exceeded 100% of their after-tax income. According to the revised budget, their fixed expenses have already surpassed their monthly after-tax income.
Faced with financial difficulties, Margo initially believed that the solution lies in increasing income rather than cutting expenses. She herself attended private schools from a young age and hopes her children receive a similar education. To her, her children’s school, residential community, and family lifestyle are things she is unwilling to easily give up.
Kevin once suggested moving to New Jersey to lower living costs, but Margo was reluctant to leave their current place of residence. Over the years, Kevin has been mainly responsible for the family’s finances, and Margo has limited knowledge of the specific income and expenses. It wasn’t until participating in the program that they began to meticulously review their household expenses and discovered that the actual spending was much higher than initially imagined.
However, Kevin clarified on the show that they are not really in the red every year, but rather they nearly spend all the money they earn, making it challenging to save enough.
Sethi pointed out that although the couple owns properties worth millions of dollars, these assets also require ongoing financial input. Aside from the mortgage, home maintenance and upkeep also entail significant costs. He estimated that just for home maintenance, they might need at least 40,000 US dollars per year.
Sethi recommended that the couple reevaluate their household budget, including housing, vacations, and other high-cost living expenses while increasing savings and investments. But these choices are not easy for the couple. They wish to maintain their current family lifestyle, allow their children to continue receiving private education, and at the same time, break free from the monthly worry of paying bills.
Sethi believes that if the couple is not willing to adjust their current high expenses, even with their high income, it will be challenging to achieve their financial goals.