I'm going to give each of you a million dollars today. Are you jumping for joy? Now granted, a million dollars is still an amount of money to be reckoned with, even with today's inflation. But what will it get you? Well, you can buy things with it. So you can pay for a house, and depending on where you buy that house you'll either have some serious money left or only chump change. And in a whole lot of places in the NY area it's the chump change that will be left. You can pay for college/graduate school, and depending on the school that's a $100-200K expense. You can pay the yeshiva tuition for 5 children, nursery through 12th grade. Maybe in addition you could send those 5 kids to summer camp for 6-7 summers. Or instead of camp you could send those 5 kids to Israel for a year post high school. Or instead of camp and Israel you could pay for a lower end wedding, at today's prices, for each child.
Maybe you're going to save that one million dollars. Okay, even in a bad economy you are going to find someplace that will give you 5% on that money. At 5%, and assuming no withdrawals, that money will double in 12 years. So in 12 years you'll have $2 million dollars. And at the end of 24 years you'll have $4 million dollars. Now that is some serious money. But first things first. First you are going to need to have that original $1 million dollars to invest, and you're not going to be able to touch that money for 24 years. Even assuming that you weren't worried about the money doubling and you took out the interest every year, suddenly that one million dollars translates to $50K each year, before taxes. It doesn't even cover the tuition for those 5 children.
Now let's look at those activities in the first paragraph again: buying a house, college and graduate school tuition, yeshiva tuition, summer camp, year in Israel programs, weddings. Those aren't activities that we associate with millionaires today. Look at the frum community and those are typical activities for broad swathes of the community. And there are more things that we purchase in addition: many more different types of simchas, furnishings, cars, trips etc. The million dollars I gave you isn't going to cover these additional activities, never mind the basic expenses of staying alive.
But what if I didn't give you a million dollars today? Does that mean that you won't indulge in any of the activities that a million dollars can buy? Hardly. But it does mean that we'll all be spending as if we had a million dollars hanging around when we don't.
A recent discussion I had with a professor of Economics centered around that one million dollars. His feeling was that people need to budget a lot differently than they are doing. He first recommends putting down all those things that "for sure" a million dollars would pay for, tuition etc. Add them up across the years you will be paying for them--the years your kids will be in school, the length of your mortgage etc. Now come up with a time figure for how long you will be paying for these things you want/need. 20 years? 25 years? 30 years? Now add up the cost of basic living and multiply by that number of years. Add in the cost of the items I discuss above. Divide the figure by the number of years. That's what you will need in clear money every year. If you didn't include them, you must also add in the cost of insurances and a set amount of money to be put away towards retirement. He did the math, I looked at the figures and I blinked twice. After he handed me a glass of water he pointed out that lots of people are living what is really a million dollar life style, but a million dollars won't pay for it; in some cases $2 million dollars won't pay for it. Budgetting year to year is not enough, he says. You have to look at the big picture.
He then went back to that $1 Million dollars invested to double at 12 years. "Where's it coming from?" he asked. Even if you are earning that million you're spending piecemeal as salary you'd need to be clearing about $125-150K a year to pay for everything you think you need to be frum.
Depressing or not, cutting back and cutting down on some of the things we have been spending on as part of the frum lifestyle is a necessity, unless you are one of the lucky ones and someone is giving you a million dollars. But wait, a million is not enough. Maybe they need to change the name of that television show to "Who wants to be a multi-millionaire?"
2 comments:
Have to agree that the frum community doesn't get it about money. If you look at any of the figures about how much a person can expect to earn in a lifetime of working, take off the taxes from that amount. It seems like a lot until you add up all the expenses you mentioned and a whole lot more you didn't.
But one of the biggest expenses is not all that easy to cut out or down. There's a lot of talk about putting kids into public school. There's talk about charter schools and home schooling. But most of it is talk because most people if they are honest want the traditional day school or yeshiva type of education. So how do you cut down when the product you want is pretty much the same price all over?
Only real places I can think of to cut down hard is where you live, the kind of simcha you make. the summer camp thing and certainly the year in Israel.
We have four kids. If no school raises tuition until they are all finished (any chances of that?!!!)we will have paid $712,000 for the four kids. That's not counting any preschool because we had a parents coop for that. That's not counting any extra expenses the schools sometimes ask for. That's just tuition. And most of those years we were paying for 4 at a shot. First year this year that we only have three in school.
Looking at the total gave me a real headache. We're sure not living the kind of life that should afford $712 thousand in private school tuition.
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