This article first appeared on The Financial Samurai in March 2017.

I’ve highlighted in a previous article how living off $200,000 a year in an expensive city is really just an average lifestyle. In this article, I’ll discuss how one couple is living paycheck to paycheck while making a combined $500,000 a year. They are a real couple who shared with me their financial details to anonymously share with you. Judging others, after all, is an American pastime!

$500,000 a year or higher is a level which I think is considered rich. Anybody who thinks otherwise has no concept of financial reality. Even the government almost agrees after compromising by raising the income level for when the highest marginal tax bracket kicks in to ~$400,000 from $200,000 back in 2013.

Although making $500,000 a year may sound like a Herculean task, you’ll be surprised to know there are plenty of regular folks who hit the half million mark every year. I literally get e-mails and comments from similar income-earning couples every week asking for financial help. This article will discuss why many folks who earn a large income won’t be retiring any time soon.

1) A couple 30-year-old lawyers in their fourth year at a big law firm

2) A couple of 32-year-old second-year associates at an investment bank after business school

3) A single 31-year-old VP at a private equity shop two years out of business school

4) A 35-year-old senior project leader at a management consulting firm and her schoolteacher husband

5) A couple of 35-year-old doctors (cardiologist and anesthesiologist) three years after their fellowships

6) A 46-year-old Chief Marketing Officer and her 52-year-old police officer husband

7) A couple of online marketing consultants in their mid-30s

8) A 41-year-old super frugal personal finance blogger who preaches riding a bike, doing your own home construction, and living off $30,000 a year or less and his wife

9) An engineer at Google who has been there eight years and his partner at Salesforce

10) A 22-year-old rookie professional basketball or football player and his product manager wife.

11) A junior partner at a law firm and her Silicon Alley engineer husband

12) A Bay Area janitor and his elevator technician spouse

As you can see from my examples above, plenty of professions make $500,000 a year or more in household income at a relatively young age (<40). Finances are much easier when you combine forces!

People who consistently earn $500,000+ annually should not have any financial problems. If they do, they aren’t getting sympathy from anybody since they’re making roughly 10X the median household income. A very simple solution to growing rich is to simply track your finances for free online like how you’d track your weight by stepping on a scale at least once a week to keep yourself honest.

But money can be intoxicatingly evil once the big bucks start rolling in. As soon as you start making multiple six figures, you begin associating yourself with other people who make similar amounts or much more. Remember, it’s nice making max money in the NBA. But it’s even nicer if you are the owner who can cut max money checks!

There’s a never-ending cycle of financial comparison. And with comparison comes envy, jealousy, depression, and all sorts of ridiculous feelings that would not be felt if you just took a step back and realized how fortunate you really are. This is why if you do want to beat the Joneses, you should compete on FREEDOM because there’ll always one more dollar to be made.

The below chart is an annual spending example of a couple who each make $250,000 a year as lawyers. They have two children ages three and five. They are both in their early 30s and live in New York City, the most expensive city in America!

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$500,000 INCOME ANALYSIS

Largest Expenses

Taxes ($185,600, ~40% effective tax rate): The government doesn’t believe in two high-earning working spouses. They want one spouse to stay at home and take care of the kids. If they didn’t, why did President Obama campaign aggressively for $200,000 + $200,000 = $250,000 before taxes go up for the top? Equality would dictate that $200,000 + $200,000 = $400,000, which is the compromise our politicians made.

Living in NYC is expensive due to Federal (39.6% marginal tax bracket), State (10%+), City (4.25%+) taxes, and FICA tax of 6.4% for the first $127,200 you make for 2017. Unfortunately, NYC is where the jobs are. This couple is paying roughly $8,000 – $10,000 extra a year due to the marriage penalty tax. Furthermore, they have AMT, an extra 0.9% Medicare tax they have to pay on income over $200,000, and net investment income tax (NIIT) of 3.8% on income over $250,000!

Mortgage ($60,000): $5,000 a month in mortgage expense bought this family a ~$1,500,000, 3/2, 1,700 sqft apartment in Brooklyn a couple years ago. In other words, they are living comfortably, but not large. Luckily, they bought their apartment a couple years ago because similar apartments are now going for $1.6 – $1.8 million. Good thing the coastal city property market is finally slowing down as prices went a little out of control. Money is now flowing to the heartland via real estate crowdfunding, where valuations are much lower, yields are much higher (10%+ vs. <4%), and job growth is accelerating.

Childcare ($42,000): They are getting a discount with two kids, given childcare for one kid costs closer to $30,000 a year. The $42,000 a year cost can be spent on daycare or a day nanny, although some contend that $42,000 is not enough.

Student Loans ($32,000): Law school tuition runs $50,000 a year for three years. That’s $300,000 in law school tuition plus room and board spent. If they didn’t go to law school, they could have easily made $65,000 – $80,000 a year doing something else. So many people conveniently forget that in order to get a high paying job, it often takes a lot of expensive education. It would be nice if the US education system was practically free as in Canada or Europe, but it’s not. It’s typical for many doctors and lawyers to have over $100,000 in student debt to pay off over a 10-20 year period.

Debatable Expenses

Food For Four ($23,000): Spending $23,000 a year on food means spending roughly $1,916 a month, or $63 a day for four, or $15.75 per person for breakfast, lunch, and dinner. I challenge anybody living in a big city to consistently live off $15.75 a day for longer than three months. Work lunch alone costs $10-$15 for a mediocre meal compared to $5-6, 10-15 years ago. Therefore, the solution is to buy in bulk and always bring food to work. Unfortunately, that gets old after a while, especially when you’re working 60+ hours a week.

Car Payments ($9,600): With two precious ones, the parents decided to lease two family-friendly vehicles: a BMW 5 series and a Toyota SUV with third row seating. $800 a month in lease payments means one less hassle when it’s time to get rid of the cars. They like the convenience of covered maintenance and the peace of mind by having a warranty. They are busy professionals with kids. Car problems are the last things they want to deal with.

Three Vacations A Year ($18,000): Let’s say each vacation is one week long and costs $6,000. Is that so unreasonable for four people? Seven nights at a 3-4 start hotel costs $300 a night ($2,300 including tax). Roundtrip airfare for four to debt-laden Puerto Rico costs another $2,400. The family is left with $1,300 to spend on food and activities.

Charity And Alumni Giving ($18,000): $18,000 equals 3.6% of the family’s gross income, which is inline with the average donation percentage by income according to the National Center For Charitable statistics. They each give $7,000 to a charity they strongly believe in, and also give $2,000 a year each back to their respective undergraduate alma maters.

Children’s Lessons ($12,000): It’s a competitive world out there and these parents want the best for their kids. The kids are taking violin lessons, Mandarin lessons, and tennis lessons throughout the year. At an average cost of $1,000 a month, they believe this money is well spent. How else are they going to be able to get into private grade school that costs up to $50,000 a year? They’re feeling the pressure at work, so their kids might as will feel the pressure in school.

Miscellaneous ($10,000): Unless you track your finances like the CIA, which you should, something always comes up. If nothing ever came up, you wouldn’t have people with less than $5,000 in savings after 10+ years of work. If nothing ever came up, there wouldn’t be so many budget deficits. If nothing ever came up, we’d live our lives as planned.

All The Push-backs Addressed

I’m sure by now many of you are wondering what the heck is wrong with this couple? How could they earn so much money and be left with so little? As someone who started his career working in Manhattan in 1999 with a $40,000 salary, and living in a studio with a high school buddy in order to save money, I’ve wondered the same thing. But let’s see if we can understand this couple’s point of view.

Here are your most common responses and some further thoughts:

Pushback #1: A 40% effective tax rate is too high!

It does seem a little high given the charitable givings and mortgage interest expense. But due to AMT and mortgage interest deduction phaseouts, this couple isn’t getting as big of a deduction as you might think. There’s probably room to lower the couple’s effective tax rat by 5% with some aggressive accounting. It all depends on how much risk you want to take. Here’s some quick math from an astute reader. Do your own!

NY State tax : (500K-18K-18K-15850)*0.0685= ~$30,700

NY City tax: (500K-18K-18K-90K)*0.3648+3000= ~$16,700

Social Security tax (FICA): 7347*2= ~$14,700

Medicare: 500K*.0145 = $7,250

Federal tax: Deductions: (47.4K state local), 20K real estate tax, 18K charity, 41K mortgage interest (This is the third year of the amortization as per your information). Child care tax credit: 1200 -> ~104K

Obamacare tax: (500K-250K)*.009= $2,250

Total taxes of $175,600, which is not too far off from my $185,600 estimate. The child tax credit phases out after a married couple starts earning more than $110,000. Therefore, my ~40% effective tax rate is pretty darn close to reality. Run the numbers if you don’t believe.

Pushback #2: A $1,500,000 home is way too expensive! They should just move.

Yes, $1,500,000 is a lot for almost everywhere else in the world, but in Manhattan, the median home price is roughly $1,280,000 and $1,115,000 in Park Slope, Brooklyn. Spending 20% more than the median home price when you have a family of four to house isn’t that egregious.

With selling costs still stubbornly high at 5% – 6%, selling so quickly after buying isn’t an optimal move, especially because of the kids. Real estate prices are a reflection of job growth and income levels. Yes, you can move to Idaho to save on housing costs, but you will have a much more difficult time finding multiple six figure jobs. Invest in the heartland of America through real estate crowdfunding is a simpler, more efficient way to profit from higher yielding properties.

Pushback #3: Who needs two cars in NYC?

Nobody, really. With an awesome subway system and cheap ride sharing, one car is enough for a family of four. If they cut down on one car, they can save $400/month or $4,800 a year. Not a huge amount, but something. The chart is an example of an imperfectly optimized financial budget. It has room for improvement. Having a large car becomes important with kids because you want to get away from the city and take their friends too.

Pushback #4: $12,000 in music and sports lessons?!

The pressure to get into a private school in cities like SF, NYC, and LA is immense because of public fund mismanagement and strange lottery systems that don’t allow students to attend their local public schools where they pay property taxes. It’s sad to put kids through the wringer so soon, but I guess the cycle never ends if the parents went through the wringer themselves.

Pushback #5: Having $7,300 left over is still a lot!

It is, if you don’t live in a big city with two kids to support. One accident, and that money is gone. This is why having good health insurance, life insurance, and an umbrella policy is so vital. Even then, we hear horror stories about how insurance companies don’t fully pay out. Remember, everything is relative in finance. You can’t compare your cost of living to their numbers if you don’t also live where they live.

Pushback #6: Three vacations a year? What a joke!

It’s sad that we view having three, one week long vacations a year in America as a difficult thing to do. Spend some time working in Europe or Asia and you’ll discover how little vacations Americans actually take. Is there any wonder why countries in Europe, despite their high taxes, consistently rank as the happiest countries in the world? Let’s gain more perspective on work-life balance, money, and happiness by visiting other countries.

Pushback #7: At least they are building a 401k balance and home equity.

This is exactly right. When it’s time for them to leave the rat race, they’ll at least have a sizable 401k balance and a good amount of home equity if real estate continues to increase with inflation. Nothing is a guarantee as we saw during the financial crisis, but chances are high their investments and home equity will continue to grow.

The reason why they might not feel rich is because they can’t touch their 401k money before 59.5, unless they want to incur a 10% penalty. Further, given they only own one property, they’re neutral the real estate market because they have to live somewhere. Only if they own more than one property are they actually long. They could take out a home equity line of credit (HELOC) to fund their lifestyle, but that’s what caused many homeowners to get in trouble in the last downturn.

Related: How Much Should I Have In My 401k By Age?

Pushback #8: Where’s the line item for college savings?!

This is where all the cost savings we’ve conducted so far gets nullified. College tuition now ranges from $20,000 – $75,000 a year. When you add on room and board, we’re now talking $35,000 – $100,000 a year for four or five years. Now imagine how much college costs a year in 10-20 years? Holy crap! Every couple who plans to send a child to college needs to start saving at least $20,000 a year from year one! And that’s if you don’t plan to send your kids to private grade school.

High Income = Lots Of Stress

If you’re making $500,000 a year in household income as a worker bee, you’re probably going through a lot of stress due to the amount of hours you are working plus the amount of taxes you are paying. Making money as a W2 wage slave is the worst way to go. Society won’t acknowledge the sacrifices you made, the time and money you spent, and the risks you took to get to your position today.

Is there any wonder why money doesn’t buy happiness?

A better income strategy and a happier lifestyle may be awaiting just a notch below in the upper middle class where miraculously you’ll suddenly no longer be a target. Perhaps you can reduce earnings by dialing back work to a more leisurely 40 hours a week and spending the extra time doing stuff you enjoy. Or maybe you can start a business so that some of your living expenses can be written off from your income to lower your tax burden.

What if one spouse loses their job or wants to take a break from the grind?

With over $250,000 a year in after-tax expenses, this family must change their lifestyle quite drastically. Even after eliminating 100% of charitable givings, getting rid of both car lease payments, and no longer paying for children’s lessons, they’ve still got $200,000 in annual living expenses to cover!

This couple is saving $36,000 a year in pre tax retirement accounts plus $7,000 a year in after tax savings. With a monthly expense of $22,583 to maintain their lifestyle, can you guess how many more years they need to save at their pace to maintain a similar lifestyle in retirement? At least another 63 years if we believe the couple should have at least 10X their $271,000 annual expenses in net worth by age 60.

Here’s a handy net worth target chart I’ve put together for those looking for some wealth accumulation guidance. Due to inflation, low interest rates, and the desire to not outlive your money, try to shoot for 20X your average gross income over the past three years.

Make The Money And Escape!

For those of you who are super ambitious, it’s worth working your butt off to see how far you can go in your career. If you get to a multiple six figure income level, shoot to last for 10 years while saving 50% or more of your after tax income, not under 10% like this couple. Eventually, you’ll accumulate a large enough financial nest egg where you can do whatever your heart desires.

Not a day goes by where I’m not thankful for working brutal hours in my 20s and early 30s. Being free is absolutely priceless the older you get because you no longer are willing to put up with the world’s bullshit. After I left Corporate America in 2012 at the age of 34, all my chronic pain (TMJ, lower back pain, sciatica, tennis elbow, golfer’s elbow, etc) went away. The time for working on a side-hustle before or after work is now. You never know what might become of it.

It’ll feel weird giving up so much money at first. Golden handcuffs are incredibly tough to break. But I bet the value of your new found freedom will far surpass any money you’ll forsake. Always remember that money is simply a tool for happiness. If you aren’t happy doing what you’re doing then you must either save more, change careers, or take some calculated risks.

More from Sam Dogen:

The dark side of early retirement

The fear of running out of money in retirement is overblown

Sam Dogen is the founder of FinancialSamurai.com, a leading personal finance site established in 2009 that teaches people how to achieve financial freedom sooner, rather than later.