Reading Time: 8 Min
From a $267K legal sex worker in NV to an $85K management consultant in Hong Kong to a $30K food technician in Chicago, here’s a sneak peek into how others live.
I love reading about other peoples’ lives and how they prioritize their spending. If you’re like me, Refinery 29 has put together a great series of of money diaries which profile a week in the lives of folks from all walks of life. Below are a few of my favorites, with some observations I had reading through them.
$65K Brooklyn Copywriter
This profile was very interesting to me because the setting of her story (NYC) and her routines mirrored mine pretty closely four or five years ago. I lived on about $24k a year when I was starting out in the city. It looks like she’s been able to keep her monthly expenses about the same, excluding her student loans. Her total delineated monthly expenses total $26,313.72.
As I look at what she spends her money on monthly, it’s clear she’s being pretty careful about extraneous expenses. I admire that.
There’s some detail missing to be able to true up to her total salary. She says she only automatically saves $75 but is often able to put several hundred away. Given the delta between her income and listed expenses, she should presumably be able to put about $12k a year away in after-tax savings, or $1k a month. That doesn’t take into account the roughly $10k in bonuses she says she gets each year.
What saddens me the most about this account is how little she contributes to her 401k. She puts $162 a month into her 401k and her company matches, which is a contribution of $324 a month, or $3.8k a year. The maximum 401k contribution limit per year is $18k in 2017. Meanwhile, if you run her income through a state tax calculator estimator, the marginal tax rate she pays on every dollar is almost 43%! If she put a dollar into her 401k instead of into post-tax savings, she’d have 43 cents more per dollar invested working for her.
For those wondering, marginal tax rate is the what I use to build this example rather than blended effective tax rate because marginal is the tax you pay on the very last dollar you’re taxed on. If she chose to put that last dollar into a tax-advantaged account like a 401k, she would capture the entire value of that marginal tax rate, which is often more than the blended tax rate across all the dollars you earned in the year.
A second observation: while this income calculator shows an effective blended tax rate of approximately 31%, the amount she cites as showing up in her bi-weekly paycheck implies a withholding rate of 42%. Perhaps she has some extenuating financial circumstances that make this an appropriate figure, but if she is regularly getting multi-thousand dollar refunds each tax cycle, she would benefit from correcting the withhold amount with the payroll department. Those thousands of dollars that rightfully belong to her would then be able to work for her throughout the year rather than working for the government interest-free.
$267K Nevada Legal Sex Worker
I found everything about this story fascinating. Putting aside everyone’s personal views on the trade in question, this is a woman who has built her own business and has a flexible, atypical schedule. Her money challenges include questions that business owners/the self-employed face, not least of which is the cost of health insurance.
She gives two reasons in the profile why she is uninsured. At the end of the week’s profile, she shares that she gets sick and will likely be out $20k+ in medical expenses. Ouch.
I’m not sure I fully understand the reasoning why she didn’t get health insurance and I highlight it here not to shame a fellow person just trying to get by in life, but because I think delving into the reasoning may help others who face similar situations and can arm them with helpful, money-saving information.
The two reasons she gives for not being insured this year:
- She says she was living in the Midwest for part of the year before moving to Nevada and that insurance plans don’t cover multiple states, which is true.
- She is young and relatively healthy, and insurance costs $400+ a month which she would have to pay herself
Multi-State Living Situation
It’s true that open enrollment typically happens in Nov/Dec for the following year. This seems to have informed her commentary below:
“As an independent contractor, I do not have an insurance plan through my job. Instead, I would have had to obtain insurance at the beginning of the year. Unfortunately, these policies do not cover multiple states, and I was still living part-time in the Midwest at the beginning of the year. (The reason why I opted out of insurance.)”
However, to my understanding, moving states qualifies as a life change event that enables you to purchase insurance in the new state. I do not know if she knew that, but now you do, and you can explore that option if you find yourself in a similar multi-state situation. In this case, you would qualify for what’s known as a Special Enrollment Period (SEP) due to a life change. When you hope onto your state’s health insurance exchange, it will ask you whether you had a life change and when it happened, and then allow you to look for plans even if it’s mid-year.
High Cost of Insurance
Our author tells us that the cost of insurance seemed very high to pay out of pocket. I can understand the impulse to eschew insurance as a young and healthy individual. It’s a very personal decision how you weigh the risk and expected value. Just because she had an adverse event that will cost her thousands doesn’t mean her decision was wrong since it was based on odds and risk calculations. Certainly it’s not one I would have taken, but that’s besides the point. The issue I will introduce here that might be constructive though, is that as a self-employed individual it’s likely she would be able to deduct the cost of her health insurance.
Here’s a quick explanation over at Nolo. Running her $267k salary through SmartAsset’s state tax calculator, it looks like her marginal tax rate is 35%. So if she were to purchase health insurance, the cost she should be measuring against is not $400 a month, but rather $260 a month.
In addition, it’s unclear whether the $400 a month she was quoting was for a high-deductible plan or for a cushy low co-pay, low-deductible plan. I am a big believer in insurance for catastrophic scenarios, so if the price was high in her estimate, I would encourage looking at lower cost high-deductible plans. This would also then allow her to contribute to a tax-deductible Health Savings Account, giving her 35% more bang for her buck.
Finally, if for whatever reason she was healthy as a clam and did not need to draw on that money, HSA funds carry over into progressive years and you are able to withdraw those dollars tax free at age 65. The HSA would act as tax-deductible dollars for her future medical expenses, and the fall-back is that it would become tax-advantaged retirement savings. Win-win in my book.
$210K Attorney in Philadelphia
Philly is one of my favorite cities in the US and one of the top contenders on my “Places to Live in Retirement” list. I just really enjoyed this woman’s day to day description of living in the city.
It is interesting for me to compare how many spending habits I had that were similar to hers while I was working (dog walker, the drive-by coffee shop or snack purchases, etc.) that no longer appeal to me now that I’m retired. I used to think of those comforts as extremely high marginal utility. Now, not so much.
This profile highlighted to me how large a role life circumstances play in influencing the way you view a particular purchase. Before I retired, I thought these things (dog walker, outsourced help, artisanal snacks) were my personal preferences. It was only after I retired that I realized my external circumstances (work schedule, work stress) were what drove my preference for those purchases. I write about that shift in retirement here.
That realization has been at once humbling and empowering. Now that I know how significantly external circumstances influence my preferences, I have a new lever to change behaviors/preferences I’m not happy with. Before I would have just had to accept that that’s the way I was. Now, I know that if I free up time I actually enjoy doing things for myself like walking my own dog and cooking.
How Do Your Expenses Stack Up?
How do your expenses stack up? If you’re looking for an easy way to drill into your own monthly expenses, I highly recommend a free dashboard called Personal Capital. I use it to track my expenses as well as net worth and portfolio holdings. You can read more about how I use it here or get yourself set up and looking at your own data in less than 10 minutes by signing up over here. It’s a great small task you can accomplish to set yourself up for a great financial year in 2018.
Other Interesting Profiles
- 5 Diaries on $40-$50k Salaries – These profiles are all focused on coastal city inhabitants. A financial advisor in Philly, a housing case manager in Seattle, an aquatic biologist in central CA, a think tank program manager in DC, and a special education teacher in LA.
- $85K Hong Kong Management Consultant – I visited Hong Kong for a week many years ago and it is an extremely unique place. Getting to hear about life in a different city was fun.
- $30K Chicago Food Technician – I love the idea of working professionally with food so I found this profile very engaging.
- 5 30-Year-Olds Share A Week In Their Lives – I’m about to turn 30 and I’ve been curious how others have set up their lives at 30. What they enjoy, what they think about, and what time they sleep. I was out until 10pm this past Saturday with friends and couldn’t keep from yawning all over the place. Is this normal? Am I the most boring almost-30-year-old on the planet? These profiles gave me comfort and helped me answer those questions.
It is thrilling to see so many different paths to living life through the money diaries series. I personally enjoy getting the chance to ‘try on a new set of clothes’ by following these folks around in their one-week profiles, and there’s a lot I think we can learn (both what to do and what not to do) from their stories.
What profile jumped out to you? Any ideas you picked up (or have flagged to avoid) from reading these money profiles?