Making $100,000 a year does not mean that it’s time to go out and get a Lambo. What it really means is that it’s going to be Toyota Camry Time.
I’m going to help you envision your lifestyle if you made a $100,000 a year.
I’ll help you get a true sense of how much you will make, if you make $100,000 a year. You take the total amount of $100,000 and divide that amount by 12 (for the 12 months in a year), which means you’re making $8,333 a month.
But that’s before taxes are factored in, so your true amount is even less.
If you make $100,000, you’re going to pay about $26,903 in taxes.
Here’s a breakdown:
- $15,253 in federal income taxes to the IRS
- $6,200 in social security taxes
- $1,450 in Medicare taxes
- For example purposes, let’s say $4,000 in state income taxes (you can make adjustments for state income taxes if it’s more or less than 4% in your state)
After factoring in all those taxes, you’re really bringing home $73,097 a year. This means that you’re actually bringing home $6,091 a month, after taxes. That’s a pretty sizable drop from the $8,333 a month without taxes factored in.
A general rule is that you should be spending 50% of your after-tax money on your needs, which includes housing, utilities, groceries, health insurance, and maybe a car payment. Next, you should be budgeting 30% of your after-tax money for your discretionary spending, such as shopping, dining out, entertainment, hobbies, vacations, etc. Lastly, you should be saving 20% of your after-tax money.
Let’s start with your needs.
You’re bringing in total of $6,091 a month after tax, which means that at 50% for your needs, you’ll have a budget of $3,045 a month for housing, utilities, groceries, health insurance, and maybe a car payment.
We’ll use national averages of:
- $500 a month for groceries
- $250 for health insurance, this will vary greatly, but we’ll go with $250 for this example
- $200 for utilities, which includes electricity, water, gas, internet, cell phone, and maybe Netflix?
- We’ll assume in this scenario that you don’t have a car payment
After factoring in all those expenses, you have $2,095 a month left over for housing.
Options that you have:
- If you’re going to rent, you can look online to see what $2,095 a month will get you.
If you’re going to buy a home, and you put 20% down with a 2.75% interest rate on a 30-year fixed mortgage loan while taking into account property taxes and light maintenance, you can afford a $450,000 home.
- In other words, if you have a $450,000 home, you’ll put $90,000 as a down payment and you’ll have a $360,000 30-year mortgage at an interest rate of 2.75%.
For your discretionary spending, let’s see how much money you’ll have to play with. Your after-tax take home pay is $6,091 a month. 30% of that is $1,827 a month. That’s about $60 a day.
$60 dollars will be your daily allowance for dining out, getting coffee, transportation, shopping, entertainment, travel, etc.
This is where people get into trouble and will overspend and eat into their savings or they’ll go beyond that and build a credit card balance.
For your savings, you should be saving 20% of your after-tax dollars, which is $1,218 a month, or $14,616 dollars a year.
That might sound like a lot of money, but remember, if you’re going to put down 20% on a $450,000 house, then you would need to save for 6 years to achieve that.
Additionally, you might have large purchases, such as a vehicle, where you don’t want a big auto loan or you may incur emergency expenditures.
So to sum it all up, if you make a $100,000 a year and if you live within your means, then this is as good as life gets:
- You get a $450,000 home or you get to rent a place for $2,095 a month
- You get a spending allowance of $60 dollars a day
- With your savings, if you put it in the stock market and earn 7% a year, you’ll get to retire on $1.38 million dollars in 30 years.
Please note that in 30 years, $1.38 million dollars will not be worth as much money as it is today due to inflation.
I hope this helps you envision your life as a person making $100,000 a year.
Let me know if this is the lifestyle you expected on a $100,000 income.
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