You have finally made it financially. You landed a job with a six-figure salary – a financial dream come true! You probably feel like a millionaire, ready to buy a Land Rover with leather seats or bring your entire mishpacha to Eretz Yisrael for a well-deserved relaxing – and spiritual – vacation at the Waldorf Astoria, which is within walking distance of the Kotel. But looking at your achievement more realistically, you might ask yourself whether you will really be able to afford a Rolex watch or merely be able to pay for your children’s chasanas without going into debt? Let’s explore what a six-figure salary means for a frum family’s bottom line.
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A six-figure salary is an income
over the amount of $100,000 but less than a million dollars. That’s quite a
wide range. Who makes a six-figure salary? The statistics are a bit confusing.
Some websites report that it is 5.4% of the U.S. population. However, this
number includes infants, teenagers, retired individuals, and spouses who choose
to stay at home instead of work. When you delete these demographic groups, the
statistics change to 9% of all earners in the U.S. making a six-figure income.
This number can be further differentiated by geographic location, profession,
experience, and educational level. Other information gleaned from the internet
states that 18% of the U.S. population earns a six-figure salary. No matter
which statistic you look at, however, it is clear that the majority of
individuals in the United States earn a salary in the five figures, not six.
A six-figure income is considered
a high salary, but since it covers a wide range, the amount you would make per
month is going to vary significantly. For example, if you make $100,000 per
year, you would earn about $8,334 per month in gross income. Gross income is
the total amount of money an employee earns before taxes and other deductions. And
of course, the tax situations of individuals vary. Now, let’s suppose you earn
$350,000 per year. Your monthly gross salary would be approximately $29,167.
And if you earn $500,000 per year, you would have a monthly gross salary of
approximately $41,000 per month. Quite a difference!
Now we consider the deductions. There
are five mandatory payroll tax deductions that employers are required by law to
withhold. These deductions are federal income tax withholding, social security,
and Medicare taxes (often referred to by the acronym FICA); state income tax
withholding, and court-ordered child support payments. These deductions are out
of your control and will eat into your paycheck. Your take-home pay, sometimes
referred to as your net pay, is the total amount of money that will actually be
deposited into your bank account after taxes and other deductions.
Deductions can also include
health, dental, and vision insurance, life insurance, short and long-term
disability insurance, long-term care insurance, wage garnishment, profit
sharing, and retirement deductions. The take-home pay on a $100,000 gross
income for a married couple filing in Baltimore would be about $77,000. This
represents FICA as well as state, and local tax withholdings, which means they
have paid about $23,000 in required taxes, before other deductions.
A married couple filing in
Baltimore with a $350,000 gross income would owe about $80,000 in taxes, with a
net take-home pay of slightly over $240,000, again before any other deductions.
Although $77,000 or $240,000 is still a lot of money, it is much less than
$100,000 or $350,000, when the tax bracket is factored in and taxes are
withheld.
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How can a frum family’s take-home paycheck be further diluted after taxes,
insurances, retirement, etc.? Let us count the ways: There’s rent or mortgage
payments; health, dental and vision insurance; groceries; tuition; daycare and
babysitting costs; diapers; utility bills; credit card and student loan debt;
transportation; car, home, and life insurance; camp; braces; therapy; and the
list goes on and on. This doesn’t include the myriad expenses of having a large
frum family – the high cost of
simchas, a lulav and esrog for Sukkos, shmura matza for Pesach, and all of the other expenses of an
observant family.
While a six-figure salary means a
larger deposit into your bank account on a monthly basis – and can make you
feel rich – it is nevertheless possible to earn six-figure salary and live
paycheck to paycheck or even go into debt. How can that be? If you spend a good
portion of your salary on the trappings of a luxurious lifestyle – with luxury
cars, vacations, clothes, expensive cuts of meats, charcuterie boards, and
redoing your home – you will be trapped in a vicious cycle of “lifestyle creep.”
On the other hand, a six-figure
salary spent, saved, and invested carefully can provide a degree of financial security
that is not available to those with lower incomes. Those who earn a six-figure
salary may be able to put aside money in their rainy day and emergency funds,
save for retirement, invest, and plan and fund other long-term financial goals.
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Parnassa is min Hashaymim, straight
from Hakodesh Baruch Hu.
Period. A six-digit salary may enable a frum family to live a more comfortable lifestyle than someone with
a lower salary. It also may offer more financial security when the money
is spent prudently. It’s important to remember, however, that money alone does
not guarantee happiness, purpose, or fulfillment. Ultimately, keep in mind that
a six-figure salary does not cultivate meaningful relationships or make a
positive impact in your community or on the world around you. In the end, you
can create all of this regardless of your income level.
Rivka Resnik has developed the
Living Smarter Personal Finance Curriculum used in high schools across the
country. If you would like a specific topic addressed or for more information
on Living Smarter Jewish Coaching or the Kosher Money Podcast, please
contact info@livingsmarterjewish.org.
