Live Like The Top One Percent With Earnings Like The Fifty Percent
Written by Cassandra Garnett
June 23, 2018 |
According to the most recent data from the Internal Revenue Service, American's top 1% of earners have a gross income of $465,626.00.
If you are in the the top 1% of earners in the United States, and you live in California, you are probably barely making ends meet. That's because in California, prices are higher on just about everything. The average price of a home in California is $531,114.85. Conversely, if you earn the median annual wage in America of $45,812.00, but you live in Mississippi, you might just be living like the rich and famous. Home prices in Mississippi are a fraction of those in California at an average of just $89,307.60.
Comparing Housing Costs
Plug these numbers into pretty much any mortgage calculator, and the picture might get a little more confusing. In California, with a home that costs $531,114.85, the monthly mortgage payment will be about $2,818.17 with a 3.49% fixed rate for a 3 year term amortized over 25 years. In California, a top 1% earner will take home about $20,017.98 per month. With a $2,818.17 mortgage payment, 14.08% of their net pay is being consumed by mortgage costs.
In Mississippi, with a home that costs $89,307.60, the monthly mortgage payment will be about $477.56 assuming the same rate and term as in the prior example. In Mississippi, an worker with an income of $45,812.00 will take home about $2,925.93 per month. With a $477.56 mortgage payment, 16.32% of their net pay is being consumed by mortgage costs. And that's more than in California, so what gives?
The True Cost Of Living (Hint: It's The Cost Of Living)
Well, when it comes to the cost of living, there's more to consider than just home costs. The notion of cost of living is calculated as an index and that allows different regions to be compared for their relative costs. For example, a loaf of bread in Jackson, Mississippi might cost $0.91. In Los Angeles, that exact same loaf of bread might cost $1.59. The reasons can be varied such as freight costs or taxation. And those numbers were not picked randomly: the cost of living index value for Jackson, Mississippi is 91.6 and for Los Angeles is 159.0.
Let's assume that the individual in California will purchase the same goods as the person in Mississippi. After all, they both need an equal amount of food, gas for their car and health insurance. The person from Mississippi will pay $1,424.25 per month, but the person from California will pay $2,472.22 for the exact same basket of goods. The difference in price is strictly due to the higher cost of living index in California.
When we look at how this affects their way of life, the impact due to cost of living on the person from Mississippi is $0.00. That's because they have the lower cost of living. However, the impact on the person from California is $1,047.97, which is the difference in price between what the Californian must pay for that basket of goods ($2,472.22) over what the person from Mississippi pays ($1424.25).
The Big Picture
When we combine the costs of housing with the increased cost of living for California, the top 1% earner must now devote 19.31% to housing and the difference in price of goods over the cost in Mississippi. At 19.31%, the top 1% earner is officially devoting more of his or her income to these costs than the 50% earner who is only devoting 16.32%.
Summary
Even as a member among America's elite, commanding an annual salary in the top 1% of all earners, if you live in California, you are barely making ends meet. The costs in California for housing, food, transportation and many other spending categories are higher than they are in a state such as Mississippi. With only a median American income fueling your spending in Mississippi, you will spend nearly 3% less of your take home pay on essential goods.
Do you have trouble making ends meet living in California? Are you earning less than the top 1%?