03:35:20 am on July 26, 2008 |
Living off $250,000 a year …
Now, I was really interested to read this section of Michael Masterson’s latest book, because this is the number that I aimed at in 1998, after attending a seminar by Peter Spann – a well known, well regarded Aussie Finance ‘guru’, self-made multi-millionaire (he started by working in a supermarket!), and all around great guy and very understated in appearance (he only gives his wealth away by the roar of his Ferraris!).
But, we’re not here to talk about Peter, so let’s hear what Michael has to say:
Again, assuming a … tax burden of 35%, you’d end up with disposable, after-tax income of about $160,000 a year.
And, again, figuring that 25% of $160,000 will go into housing, ask yourself if you could be satisfied living in a house or apartment in your chosen neighborhood that would rent for about $40,000 a year or $3,300 a month.
Figuring, again, that you’d spend 30 percent of your housing budget on associated living expenses, you’d budget about $12,000 a year for utilities, repairs, maintenance, and upkeep. Other associated expenses – food, clothing, and so on – might account for another $13,000 a year, for a total of $25,000.
Subtract the cost of housing ($40,000 a year) and associated living expenses ($25,000 a year), and you are left with about $95,000 to spend on luxuries.
Now, let me cut in here on a couple of points:
1. As yesterday, Michael calls this a $2.5 Million Lifestyle, but I believe this to be a $5 Million to $10 Million lifestyle … you WILL go broke if you attempt this on anything less than $5,000,000 … I should know!
2. Here is the weakness in the ‘rent as a proxy for the purchase’ estimate; you see, you may be able to rent a very nice place for $40,000 a year as Michael says:
In my neck of the woods – near the ocean in southeast Florida – that would get you a nice, older, two- or three-bedroom house within walking distance of town. If you want to live in Minneapolis, you’ll do much better than that on the same budget. (Don’t laugh. It’s a great city.) On that kind of income, you can live there in a modern, spacious, six-bedroom house with all the bells and whistles.
The problem is, when you get to the ‘luxury house range’ rents become a relative bargain compared to the purchase price.
For example, my “modern, spacious, six-bedroom house with all the bells and whistles” may rent for $40,000 to $50,000 a year (that would give somebody who paid $1,000,000 for the house a reasonable 4% – 5% return) but, it is actually worth $1.8 million!
So, in my estimation, your $250,000 a year lifestyle won’t buy you a home much north of $1,000,000.
Now let’s look at what ‘mouth watering’ selection of luxuries Michael offers up to those who can free up $95,000 of after-tax, after-housing, after-living, after-everything-else disposable income:
10-day Hawaaiian vacation for two $11,000
10-day London vacation for two $11,000
52 semi-fancy dinners at $200 each $10,400
52 dinners at the local place at $100 each $5,200
Lease upgrade on two Mercedes $14,400
Overboard holiday party for 50 friends $7,500
Extravagant Christmas gifts $3,000
Golf membership for two $5,000
“Spoil ‘em” presents for eight grandchildren $4,000
52 spa treatments $5,200
10 percent charity/church tithing $9,500
“where did that money go?” money $8,800
Now before you get too excited, what about the children? They eat, they sleep, and at these income levels they go to expensive schools (speaking of which, when you own a house in a nice public school area, don’t forget about yearly Land Tax!) … if private, that will set you back $10,000 to $15,000 per child per year!
Then there’s saving for college ….