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What is "house poor" - how much "entertainment" income do you all have each month?

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  • What is "house poor" - how much "entertainment" income do you all have each month?

    I apologize if this is the wrong forum. I'm crunching numbers as I look at homes in the 2M range on a salary of 550k (hcol area, ~2.5k sq ft house with easy yard). After deducting all recurring expenses, debts, car, savings (20% gross), mortgage, etc. I should have about 3.5-4k left over every month. Considering I've only ever lived on a resident or the equivalent salary, I really don't know if this is a lot or not. Is this considered house poor?

    We're pretty non-extravagant people - we like being outdoors, camping, surfing, traveling (though we're not fancy hotel/resort people), and good food. We're not your typical consumers. We still go to thrift stores although we could afford otherwise. We have any desire to do "rich people" things (I don't even know what this means) aside from eating at nice places, and I do play golf. Thoughts? Curious to hear how much you all spend on entertainment each month.

  • #2
    Most people buying a house in a VHCOL with very little down will be house poor. We’re on pace to spend the most we’ve spent mostly because of doing things to the house and we’ll likely be spending about 20% of gross. What do you consider entertainment? Does that include travel?

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    • #3
      Is this in response to the Bay Area thread getting closed down. Haha!

      Silicon valley / two years out of training: We spend more than 50% of our NET income on housing. I consider this "house poor." If you factor in our 2x daycare expenses and 2x 401ks, 2x IRAs, and some megabackdoor Roth, we have pretty limited free cash at the end of the month.

      We don't have an entertainment budget. We work backwards from the above expenses ("negative budget"). Looking at all of 2019-2020 our expenditures on "fun" average to $1600/mo (min ~$170 - max ~$6000). Fun includes the categories: family fun, restaurants, vacation, wife fun, husband fun, alcohol, donations, gifts.

      One of my biggest regrets about a VHCOL area is that despite large salaries, its been challenging to be charitable with our income. This is the first year we gave more, which is not captured in the above numbers, since my companies giving campaign just ended. Still, for 2020 were only sitting around ~2% gross on charitable giving.
      Last edited by danesgod; 10-01-2020, 02:37 PM.

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      • #4
        Wouldn't a VHCOL situation be more "house rich, cash poor" -- ie high house value compared to the general net worth. Like owning a picasso but can't sell it.

        Your situation appears otherwise with the large ability to cashflow ALL your recurring costs and still have $$ left over.

        What does your IPS say about the savings 20%? Is it sufficient or need more with the mortgage and retirement time? That's the hard part of VHCOL -- getting to mortgage free in a timely manner and have sufficient retirement savings. AND do all the lifestyle things on top of all that.

        Many families in VHCOL simply don't vacation and have inexpensive lifestyles to be able to float both the house rich and retirement.

        It fails the financial test if you can't do both and one shouldn't be entertaining the VHCOL part of the equation if the retirement IPS cannot be met IMHO,

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        • #5
          Do you plan to have kids? Because that will easily eat up 4k/ month. Of course personal finance is personal but our HHI is higher and I'd never sleep again if my mortgage was 3x what it currently is!

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          • #6
            Originally posted by StarTrekDoc View Post
            Wouldn't a VHCOL situation be more "house rich, cash poor" -- ie high house value compared to the general net worth. Like owning a picasso but can't sell it.
            Unless you're putting down a significant payment then it's more the bank's house than yours.

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            • #7
              Tell me more about these debts and car payments, which you list separately from your mortgage. Non extravagant people with that income ideally do not carry car notes or have outstanding debt.

              Your other post also noted that you are finishing training next year. I would 100% rent for a year until you are confident in the job and location. Many people change jobs within the first few years, dropping that much coin on a home can potentially be a lot of dead weight and lead you down a decision tree full of regrets.

              Back to the question at hand, an extra 3-4K in excess cash flow a month is decent. Maybe you could try boosting that savings rate up. 20% of 550k is only 110k/yr. Suppose taxes takes 40% (I saw you mentioned California). Are you really spending 200-220k a year? “Non extravagant” people with “non fancy” tastes should theoretically be able to do much better.
              Last edited by TheDangerZone; 10-01-2020, 03:59 PM.

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              • #8
                Looking at our spreadsheet we spent about 30-35k on travel/eating out/entertainment type stuff or random stuff we wanted in 2019. No kids. We also save much more than 20% of our income. But I think house poor is when you make a lot and still find yourself worried about finances because so much of it is going to the house. I think buying in a vhcol area is one’s prerogative, you just have to accept that you’ll have less to spend in other areas and won’t have the freedom to say sayonara to your job/the things you don’t like about your job at a relatively early age the way you would if you chose otherwise.

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                • #9
                  Since I am retired and have no mortgage or other debt I guess all my spending is for "fun" stuff.

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                  • #10
                    First, don't buy a $2mm house right out of training. If your job is not all you thought it would be that house could be a huge barrier to moving for another job. Nearly 4x your annual income is really dedicating a lot of your income to housing. In your calculations have you included anticipated maintenance costs? I've heard a rule of 1% of house value. That would be $20k year. I think that is too high given that the house is not a 10k sq ft house as that price would be in many markets. However, labor and material costs may be higher in your market.

                    Spending that much on a house will constrain your options for other spending but if it your priority you can do it. Again wait at least a few years after training before making that commitment.

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                    • #11
                      Good chance of underestimating efund and repair/maintenance costs. Just one “Insurance claim” would cost you $20k before Insurance kicks in. That spending cushion could disappear pretty fast. I’d build some reserves and get 2 years at the employment before doing a 4x loan.

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                      • #12
                        Nearly 4x your annual income
                        before doing a 4x loan.
                        Is this considered house poor?
                        .
                        1- OP, i dont know why ppl have a hard time answering but ill try. if you truly have 4K/mo left over thats a little over 8% of your salary as wiggle room for the year. so theoretically if you saved it you would be at <30% gross saving rate without any other extra extravagances. that seems close for my liking so ill say yes, but i dont think theres any set in stone percentage to being house poor.

                        2- for those saying 4x loan.....2M - 20% DP = 1.6M / 550K = 2.9x mortgage to salary.

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                        • #13
                          Originally posted by CordMcNally View Post
                          Most people buying a house in a VHCOL with very little down will be house poor. We’re on pace to spend the most we’ve spent mostly because of doing things to the house and we’ll likely be spending about 20% of gross. What do you consider entertainment? Does that include travel?
                          Entertainment is primarily camping/hiking/surfing, hanging with friends, golf, eating out. I do include travel, but my wife and I still largely travel like we did when we were 24 year old backpackers...never much acquired a taste for fancy hotels/resorts (or the kind of people who inhabit them). I like to think this is why we could spend more on a house in a really nice area, but maybe I'm deluding myself. I really do view the house as not only a house but "entertainment" since living mere blocks to the ocean is where we spend most of our time anyways.

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                          • #14
                            Originally posted by Peds View Post


                            .
                            1- OP, i dont know why ppl have a hard time answering but ill try. if you truly have 4K/mo left over thats a little over 8% of your salary as wiggle room for the year. so theoretically if you saved it you would be at <30% gross saving rate without any other extra extravagances. that seems close for my liking so ill say yes, but i dont think theres any set in stone percentage to being house poor.

                            2- for those saying 4x loan.....2M - 20% DP = 1.6M / 550K = 2.9x mortgage to salary.
                            My feeling is 20% gross saving would be adequate for our lifestyle in retirement - I also work in a low physically demanding field that is very easy to work part-time in which I may do for a while instead of a complete retirement from work.

                            I could certainly save more and there may be months part of that 4k entertainment fund gets put into savings. But generally speaking, I'm tending to think a family of three would not feel constrained by having to live on an entertainment fund of 4k a month.

                            And yes for clarification, I'm not talking about a loan of 2M - the houses we are looking at are in this range.

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                            • #15
                              I make roughly half what you make and after fixed expenses; savings 20%, mortgage 15 year and overpaying a little, daycare, 529, food, taxes, home maintenance (utilities and repair) we have 4-5 K left at the end that I put usually towards extra savings. It is a little higher this year because spending less.

                              Remember infrequent expenses do come up like cars and vacations and renovations. I have no problem dipping into my cash flow for this because I know everything else is taken care of.

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