Here in Canada, both Financial Post and The Globe and Mail run similar articles each week where they go through readers’ current financial situation and suggest how they can improve their retirement readiness.
I’ve always enjoyed reading these articles and examine people’s monthly expenses compared to ours. This past weekend The Globe and Mail had an interesting article called Debt doubts cast shadow for professional couple with five kids, in which a young couple struggles to make ends meet on only $25,000 a month. While reading the article I was shaking my fist and screaming WTF. This is a perfect example of high income earners mis-managing their money.
The couple, Eric and Ilsa are both high earning medical professionals. Eric who is 41 is a physician that earns $200,000 a year. He also teaches at a university for which he makes another $100,000 annually. Ilsa, 39, is a dentist currently on maternity leave who will bring in another $150,000 when she returns to work. So $300,000 annual household income currently (or $25,000 per month) and will increase to $450,000 annually or $37,500 per month once Ilsa returns to work.
Those income levels are something I can’t even imagine. I’m sure most of the readers will love to have that kind of income too! Despite their high income and prosperity, they can’t make ends meet. What the heck are they doing?
From the article:
They are living rent free in a relative’s house (they pay taxes, utilities and upkeep) and “regret not having bought a house years ago,” Eric writes in an e-mail. Houses in their Vancouver neighbourhood have doubled in price in the past two years. The house where they live is going up for sale soon, so they need to move quickly.
Last fall, they bought a building lot for $1.1-million and are planning to build a house large enough for their family and a live-in nanny. But with a combined income of $360,000 ($450,000 when Ilsa returns to work) and an $800,000 mortgage, can they afford the builder’s $1-million price tag? Who will lend them the money?
“Two professionals should be able to afford a modest house, but we can’t get the numbers to work and would appreciate some help,” Eric writes. He earns $200,000 a year working in a medical clinic. But his real love is teaching, which he does one day a week at a university; this earns him $100,000 a year.
“I have no pension whatsoever, but like my parents, colleagues and mentors, I love my work and plan to keep going well into my 80s, so retiring is not a big concern, just living,” Eric writes.
The people: Eric, 41, Ilsa, 39, and their five children (ranging age from less than a year to 9)
Monthly net income: $25,000
Cash in bank $6,000
Residential building lot $1.1-million
Property tax $1,000
Maintenance, garden $190
Children’s activities $1,000
Summer camp $600
Child care $2,800
Gifts, charitable $320
Vacation, travel $2,000
Dining, entertainment $200; sports
Miscellaneous (furniture, toys) $400
Health insurance $50
Telecom, Internet $80
Professional associations $500.
Mortgage $800,000 at 2.6 per cent
Holy cow! $25,600 in monthly expenses! And they only make $25,000 per month right now. They’re in the red for $600 each month and they’ll only manage to be in the green once Ilsa goes back to work… but that also means the child care expense will increase.
Is it evil for me to say that I don’t feel sorry for them at all? Medical professionals work super hard and deserve every cent they earn. But when they have no financial literacy you end up like Eric and Ilsa. It’s shocking considering so many bloggers have extremely high savings rate like 50% or more. These bloggers certainly put Eric and Ilsa to shame when it comes to savings rate.
Looking at their expenses a few things jumped out at me. Let’s ignore their mortgage and property tax payment for now since Vancouver real estate is a bit out of whack…
1. $2,000 in grocery bill seems quite high. I know they have 5 kids but $2,000 seems really high.
2. In the article it says all 5 kids will go to private school, hence for the $5,400 per month tuition. I’d imagine this amount will only increase once the younger kids get older. I can’t imagine spending that much money for schooling. Is private school really that much better than public school?
3. Children’s activities for $1,000 seems high, I’m curious what these involve, considering they’re spending $2,800 each month in child care.
4. Good to see that they’re putting $3,000 in RRSP each month but that’s not even close to the maximum 18% allowable contribution they can make. If they were to contribute less, then the monthly expenses would come below monthly income.
Whichever way you put it, over $25,000 in monthly expenses is a lot! I hope Eric and Ilsa will take a serious look at their monthly expenses and reduce their spending somehow. They can probably cut out a lot of luxury items to reduce their expenses. Our household has 3 people and our monthly spending is a small fraction of $25,600. I sure hope Eric and Ilsa get some education in personal finance and quickly turn their monthly deficit into surplus! Live below your means!
Another thought… although the couple has assets of $1,286,900, they have liabilities of $800,000. This means that their net worth is $486,900. Considering their income level and their age, I think their net worth is actually quite low. This is taken into account that they were staying at their relative’s house rent free while they finish building their house.
49 thoughts on “Shaking my fist and screaming WTF – money mismanagement 101”
Correction to point #4, The 18% is capped at ~25k if only he is working.
25k per year is less than 3k/month they are putting in.
I do not feel sorry for these people at all. To make that much money per month, is more than I use to make in a year. And $2000 a month on groceries does seem rather high even for a family of 7.
People often say financial education is not important. This article shows how important it actually is, when a couple makes that much money and is struggling to make ends meet.
Hi Investing Pursuits,
Totally agree that financial education is very important. Probably one of the most important things you should learn.
It’s shocking that highly intelligent and professional people can be so dumb when it comes to their finances. However, like someone else has mentioned, it could just be the circles they mix in, all their friends could be in the same boat, with no spare money, despite huge wages.
There’s no one to advise them where they’re going wrong!
It’s pretty shocking as well. They can easily change their spending habits and pave a bright future for themselves.
Someone sent me that story and it’s just ridiculous. Their vacation budget is $24,000 for the year?! And the story keeps changing kept changing…at first the husband worked 2xs a week and then he said it was 80 hours. Very odd. They may be highly educated people but they don’t know the first thing about personal finance.
Yes it’s odd that the story keeps changing and changing. It’s probably not hard to figure out the true identity of this couple. Who knows, maybe they’re getting ridiculed a bit by their friends for being financially irresponsible.
Haha, $600 a month for Summer camp. SUMMER camp. That’s insane! I could live on that amount of money if I really wanted to.
If I made this much money every month, I’d retire in two years tops.
These kids must have some elaborate summer camps. Lucky kids I guess…
These stories never cease to amaze me. I could travel the world on their income even while including a budget line for “lighting $20,000/month on fire”.
Hi Dividend Mantra,
With that kind of income it would be so easy to be financially free in less than 3 years if you know how to save and invest.
At least they aspire to only have a “modest house”
They might consider adding some condoms to their budget
Lol good point about adding some condoms to their budget. I can’t imagine having 5 kids nowadays.
$25k is a year worth of the whole entire mr money mustache would spend in a year. Hehehe the MMM clan is a bit extreme, but money mismanagement is prominent among th healthcare providers, they didn’t take business classes. Business classes weren’t required.
No kidding. A lot of MMM followers spend around $25k annually. I was shocked to see they are spending that much monthly. That’s insane.
This is another reason why there should be money management courses in elementary and high school.
Wow. Sounds like they need someone to follow them around and tell them what not to spend. I’ll do that for a mere $2,500/mo. What a deal!
Hi Mrs. WW,
No kdding, I’d totally be willing to help them out for a small fee each month. 🙂
I find this story to be mind-boggling, all while still believing it to be true. I also could see where in some areas, a family might consider private school to be the best option, especially having parents with advanced degrees. I myself went to private school. However, I will always remember my mom’s advice about it… She tells me that if she had to do it all over again, she would live in the best school district available and send us to public school. Most people will tell you that providing for their children is their top priority – but don’t let housing stand in your way of giving them the best education while still staying in the black each month.
Hi Mrs. Maroon,
Yes the story is extremely mind-boggling. $25k per month is what some people spend per year. There are instances where private school may be a good option but I think generally speaking I think public school is just as good.
How about have the husband work another few days a week instead of the 2 days he is currently working, and all of this goes away?
The original article said the husband works only 1 day a week but then Globe and Mail corrected saying the husband works 60-80 hours a week. While working more is a solution, I think the fundamental problem is their monthly expenses.
Interesting post. I don’t feel bad for them at all. Seriously there are families make only $25000 per year living within their mean and put their kids to university. They should seriously get some help haha.
Thanks for the post.
Me neither but I do feel sorry that they can’t manage their money. I would totally help them by charging a minimal monthly fee lol.
Cut the groceries, clothe with less money, stop wasting time on ‘activities’ and the list can go on and on. My god, 25 thousand per year for me in my country is already a great number and they can’t make ends meet with 25 grand a month 😀
They can certainly cut a lot of expenses to live “below” their means.
They are earning in one month what a lot of people earn in a year.
Another one that baffles me: summer camp? It’s winter where they live!
They must be saving that money monthly so they can put their kids to summer camp during the summer.
You give them too much credit. And $7,200 for summer camp?!
Oh yeah you’re right lol. $7,2000 is a big chuck of money for summer camp, especially considering some of their kids are still very young. We barely spend that much money for our vacation. They can definitely cut back on this spending.
Sounds like fancy life, fancy price to me.
That’s definitely the situation. 🙂
Stories like this just make me sad. I guess the good news is that I didn’t see any student loan debt. I agree the private school tuition is just insane and $2,000 a month for food must mean steaks and lobster everyday!
Unlike most people, if this couple turns the corner, they will be able to save $10-$15k a month and still have an above average budget.
I don’t understand the concept of private school. I don’t think it’s actually better than public school. Furthermore, once your kids are submerged in the private school environment I think there will be even more comparisons and even more expenses… They should be able to easily save $15K by reducing some of their expenses….
Ya, that story really confuses. What were they trying to prove?
The couple just isn’t living in their means. It happens at any income level, but when it’s so high it’s pretty comical. These are smart people, I hope they figure things out!
I hope they are learning a thing or two by writing in to ask for some help. They’re smart people so I’m sure they’ll figure it out.
I agree that under $500k NW for someone who is 40 is a bit on the light side. Especially since a lot of their assets are most likely real estate. And when you roll big, you get hammered harder if the market drops.
$25k is a lot, I show a similar amount on my budget for this month, but a bulk of it is moving money out of my checking account and into some boring CD’s.
With that kind of income it should be pretty easy to have net worth of over $1M at their age I think… but then what do I know right? 🙂
It is amazing to see that type of monthly expense. I actually feel so much better about my own situation when I see these types of articles. These people are on a high speed Titanic heading towards an iceberg.
Those monthly expenses are ridiculous! I can’t believe they are spending that much money! The boat is definitely sinking on this one.
I saw that article in TGAM the other day. Its ridiculous….talk about irresponsibility!
Makes me wonder if the story is actually true or not. If it’s true I’m sure it doesn’t take much effort to determine the true identity. There’s not many families with 5 kids with the dad being a medical doctor and the wife being a dentist…
I don’t. …. how does….. I can’t understand….
Haha I hope you were actually shaking your fist.
That’s crazy. Good luck with working to 80! He says he loves teaching (I would for 100k for 1 day a week.)
That’s a wedge on childcare and holidays! (Especially if one parent is on leave!)
The mind boggles
Hi Mr. Z,
Yeah it boggles my mind while reading the article as well. I just don’t get it.
Haha, I love these kind of stories Tawcan. I realized long ago that ANYONE can go broke with the right (or wrong) mix of poor spending habits and misfortune. Now all they need is an unexpected car repair for one of their “high end” luxury cars…… and they will be taking loans from relatives :o/
Anyone can go broke as long as they don’t live below their means. This couple is a perfect example.
These people are ridiculous! it baffles me that someone can go through life with such awful financial literacy…
However, a lot of this probably has to do with the social circles they move in. If their friends are spending their money on flashy things and activities, they feel they are forced to do the same, just to fit in. At some point in become a vicious cycle of more and more spending… I’m so glad I’m not in that situation! 🙂
P.S. Big fan of your blog!
Very true about the social circles they are in. Keeping up with the Joneses is a real symptom. Thanks for your kind words!
Hmmm… What can I buy with $25,000 a month? Boy, I wouldn’t mind having a personal chef!
Haha me too! $25k a month would do wonder to build our dividend portfolio.