A couple earning $500,000 a year should feel rich, right? That’s top 2% territory in America—plenty of cash to save, invest, and splurge on the finer things in life. Or so you’d think. But when I dive into the financial lives of high-income households, the reality often doesn’t match the perception.
Take, for example, this fascinating duo I wrote about: a $500K-a-year couple, both lawyers in their early 30s, raising two young kids in New York City. On paper, they’re living the dream. In reality, their budget tells a much more relatable tale of financial pressure, thanks to the crushing costs of big-city living.
The good news? With some strategic financial planning and the right tools, even households like this can break free from the rat race faster than they think.
Below is their infamous budget—yes, the one that went viral and made the finance internet collectively gasp. With a net worth of only about $350,000, including home equity and 401(k)s, they’re evidence that even the highest earners can face financial challenges. Let’s explore how they can turn things around.
A Typical $500K A Year Income Household Budget
After shelling out $185,600 in taxes, $42,000 for childcare and private school tuition, $87,500 for housing, and a laundry list of other expenses, this couple is left with a mere $600 at the end of the month. That’s hardly a buffer for surprise bills, let alone a safety net to build wealth or invest in their future dreams.
The shocking part? They’re essentially living paycheck-to-paycheck on half a million dollars a year. The stress of keeping up with high costs, coupled with the constant pressure to maintain appearances, leaves them wondering when—or if—they’ll ever be able to retire. Both are burning out working 60+ hours a week and hardly ever see their children.
Sound familiar? Plenty of dual-income families in major cities face the same challenges, but few are willing to speak up for fear of being judged. After all, how do you complain about “struggling” on $500K without someone telling you to check your privilege? But here’s the truth: the stress of not feeling financially secure isn’t exclusive to any income bracket—it’s something many of us grapple with.
Here’s a clear look at where this household’s $500,000 income is going and why it feels like it’s never enough.
Lessons From The $500K Budget Redo
When I first shared their budget, the internet erupted. Hundreds of comments poured in, with reactions ranging from disbelief to outright criticism. Some found their spending downright ridiculous, calling out their “champagne problems.” While only a small minority empathized with the challenges of raising a family in one of the priciest cities on earth.
But one thing stood out: their income wasn’t the issue. Earning half a million dollars a year is more than enough to thrive. The problem was how they managed it.
Taking the internet’s feedback as inspiration, I went back to the drawing board to see how they could optimize their cash flow without giving up the comforts they’d grown accustomed to. I made them cook more at home, sell and buy a cheaper house, do more of their home maintenance, get rid of their BMW, spend less on clothes and children's lessons, pay less taxes by contributing to an HSA, and donate less to charity (sorry).
After crunching the numbers and fine-tuning their spending habits, they managed to free up $48,890 annually, boosting their total surplus to $56,190. Progress, indeed!
From Feeling Trapped Forever To Seeing The Light At The End Of The Tunnel
By trimming their annual expenses from $278,400 to $230,305, they also reduced their financial independence target. Instead of a daunting $6,960,000, their new goal—using the 25X rule—is $5,756,625. With a net worth of $350,000 and $56,190 a year in new investments, compounded at an 8% annual return, they could hit that target in 23 years.
Twenty-three years to freedom is a step up from feeling stuck in the rat race forever. But let’s be real—23 more years of grinding when you’re already teetering on burnout? That’s no dream life. To truly escape the hamster wheel, they need to think bolder and go even more aggressive.
Instead of planning to last 23 years and retire in their 50s, let’s figure out how they can hit the ideal retirement age even sooner. By addressing both short-term cash flow and long-term goals, we can build a plan to reshape their financial future with a more aggressive approach.
Best Planning Tool for Financial Independence
To help this couple escape the rat race and build a plan for financial freedom sooner, I decided to try something I’d been hearing more about: ProjectionLab. It’s a modern financial planning tool that seemed perfect for their situation. For anyone focused on financial independence, it’s worth exploring.
Optimizing Cash Flow Now
For many high earners, freeing up cash flow starts with targeting inefficiencies. Fully funding their 401(k)s and HSAs is a no-brainer—reducing taxable income while significantly boosting retirement savings. Making debt repayment a priority by adding $2,000 a month to student loans also clears debt faster and frees up future cash flow.
And by shifting from ride-sharing to public transit, while also cutting down miscellaneous expenses, they free up an extra $5,000 annually to invest in their financial goals. ProjectionLab makes your cash flow priorities easy to optimize.
Strategic Career Moves To Boost Income And Lifestyle
In addition to optimizing spending, increasing income and improving work-life balance can make a huge difference. A couple in their situation might consider:
One Spouse Intensely Focuses On Career Growth: One spouse could commit to the partner track at their firm, focusing on raises and bonuses that steadily increase earning potential. Sure, this spouse will see their kids even less, but that's the sacrifice they need to make to earn even more than $500K/year. Equity partners at big law firms now make on average $1.4 million a year, but of course, not everybody can become one.
The Other Spouse Focuses on Work-Life Balance: One spouse might transition to an in-house counsel role at an established corporation or maybe a venture-backed startup. In-house counsel positions are typically less demanding since there’s only one client to serve and clearer objectives to follow. The median compensation for a general counsel in 2023 was $325,000, according to a detailed report by an in-house compensation survey report. This shift can help maintain a competitive salary while reducing work hours, providing greater flexibility for family responsibilities and potentially lowering childcare expenses.
If this lawyer couple in their early 30s can just keep climbing the corporate latter for another 10 years, they could see their household income grow far beyond $500,000 a year. Earning a total household compensation of $750,000 a year is a high probability. And if they can keep their expenses stable, their saving rate will go way up.
These strategies position them for consistent income growth while reducing the risk of burnout—a key consideration for high-pressure fields.
Relocate To A Lower-Cost Area To Save
Looking further ahead, a strategy like geo-arbitrage could better align their lifestyle with their long-term goals of early retirement. Selling their NYC condo and moving to a lower-cost state like New Hampshire could allow them to pay cash for a home, eliminate New York’s state and city income taxes, and save tens of thousands annually on housing.
Beyond the financial benefits, being closer to family and to children attending college nearby could reduce travel expenses and strengthen family connections.
Simplifying their lifestyle and aligning their spending with their values shaves an additional six years off their timeline to financial independence—putting them on track to retire comfortably in their mid-40s.
The Power of Visualization With ProjectionLab
Visualizing a financial plan isn’t just practical—it makes the process fun and exciting. Testing “what if” scenarios transforms financial planning from guessing to knowing which decisions have the greatest impact. It’s empowering to see how specific changes play out over time.
For example, comparing investing versus accelerating student loan payments forces you to weigh the financial benefits against the psychological value of freeing up cash flow. And let’s face it, paying off loans while saving for your kids college costs at the same time feels inefficient. Why not eliminate debt first and create more breathing room for the future?
Relocating to a lower-cost state like New Hampshire from New York isn’t just about cutting housing costs—it accelerates financial independence in ways that are hard to ignore.
Being able to map out a plan and see progress in real time provides clarity and confidence. When the temptation arises to splurge on a business-class upgrade or keep up with peers, having a visual representation of your goals helps you stay grounded. Revisiting the plan refocuses your priorities and reminds you what you’re working toward.
Using ProjectionLab, you can quickly map income, expenses, and savings goals to create a clear baseline and test adjustments—maxing out retirement accounts, prioritizing debt, making career moves, and exploring geo-arbitrage. Seeing the long-term impact of every decision makes the journey to financial independence not only achievable but something to look forward to.
The Role of Planning Tools
Achieving financial independence isn’t just about earning and saving—it’s about having a clear strategy and a plan that aligns with your goals. Tools that let you visualize your financial choices and their impact create an essential roadmap for turning your actions into the life you want.
Revisiting the $500K a year couple’s finances with ProjectionLab highlighted just how powerful planning tools can be. Testing “what if” scenarios and seeing the trade-offs of their decisions in real time made it clear where they could take actionable steps toward financial independence.
Here's what stood out about ProjectionLab and why it might be the tool for you:
Create and Compare Plans
Start by creating a clear picture of your financial situation. Enter your income, expenses, savings, and debt, and ProjectionLab will generate a baseline projection. This roadmap helps you identify opportunities and gaps, so you can make informed decisions and stay on track.
Test “What If” Scenarios
What happens if you accelerate debt repayment? Max out your 401(k)? Start a family? ProjectionLab makes it easy to test these scenarios side by side, so you can prioritize the changes that matter most.
Plan for Retirement
Simplify retirement planning by modeling tax-efficient withdrawal strategies, accounting for inflation and healthcare costs, and determining the earliest age you can retire while maintaining your desired lifestyle.
Adapt in Real Time
Life changes, and so should your financial plan. ProjectionLab allows you to update projections instantly, keeping your roadmap actionable and aligned with your goals.
Keep Your Finances on Track
Understanding where your money goes and tracking progress toward milestones are critical for financial success. ProjectionLab breaks down your cash flow and expenses into detailed projections and helps you set and monitor financial goals. Whether you’re saving for a home or aiming for early retirement, the tool helps you stay on track or adjust as needed.
Stress-Test your Plan
Uncertainty is an unavoidable part of financial planning. Using Monte Carlo simulations, ProjectionLab evaluates your financial plan under different market conditions, providing a probability of success. This feature helps you make decisions grounded in data, even when the future feels unpredictable.
Optimize Taxes
Smart tax planning can have a huge impact on your long-term wealth. ProjectionLab helps you analyze Roth conversions, evaluate tax-advantaged accounts, and maximize your tax efficiency over time.
A Financial Tool For Everyone
ProjectionLab isn’t just for high-income earners. It’s for anyone who wants clarity and confidence in their financial decisions, no matter where you’re starting from. Whether you’re exploring early retirement, questioning renting vs buying, or planning other major milestones, ProjectionLab empowers you to visualize your options, test strategies, and build a future you can feel good about.
It’s great to have options. Having reviewed tools like Boldin and Empower, each brings its own strengths. Where ProjectionLab stands out is in full-life financial planning with great visualizations. The ability to test and compare detailed scenarios make it a powerful tool for turning goals into actionable plans. You'll also be able to understand how every decision impacts your path to financial freedom.
Take Control Of Your Finances Today
Imagine if small changes to your own spending could help you shave years off your retirement timeline. With just a few smart adjustments, you too can reduce the amount you need to retire earlier.
Ready to turn your goals into reality? Financial independence starts with a plan. Build your personalized roadmap with ProjectionLab today and take the first step toward freedom. You can try it for free!
ProjectionLab is a new affiliate partner of Financial Samurai. I’m constantly testing the best financial products available to help readers better manage their finances and grow their wealth.
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Sam Dogen, the creator of Financial Samurai, worked in investment banking for 13 years before retiring in 2012 at the age of 34. He is one of the pioneers of the modern-day FIRE movement, and is the author of the new book, Millionaire Milestones: Simple Steps To Seven Figures. He lives in San Francisco with his wife and two children.
Sam,
I’ve been following you for years now and appreciate your break down on costs etc. I have read in the other comments how this current model includes older pricing of mortgages, inflation etc. The largest discrepancy is the mortgage line item. $60,000 a year for a family in a metropolitan city(LA or Orange County specifically) is un-relatable. Living in Southern Cali an average home in a decent neighborhood(not great) will run at minimum $7,000 to $10,000 with 20% down. (taxes and interest included). I would love to see an updated model but include the current real estate market/interest rate prices. For those of us who missed the 3% and under mortgage rate window, the $60,000 a year looks more like $100,000 a year and makes the rest of the model a little un-relatable. Appreciate all your articles and in-sights.
Also Sam
Good point on times changing and mortgage rates changing as well. Inflation is a doozy and I’m hopeful mortgage rates will start going down over the next couple of years as the interest rate spread between treasury bond yields narrow.
Ok, so pet peeve of “double frugal dipping” but maybe I’m missing something.
You tell them to get rid of cars- which having two cars in NYC is just about the dumbest waste of money I can imagine- but then say on top of all you have recommended, they should move to LCOL area.
They can’t do both. LCOL in America ALWAYS means cars. Usually 2. So subtract the other high NYC expenses, but the cars would have to go back in.
I hate that LCOL area recommendation that doesn’t acknowledge the cost of driving EVERYWHERE in nowhere, USA.
In my city, I’d be dead even for expenses if I moved to a smaller city involving driving everywhere. Admittedly, I can’t fathom that life of driving a mile to the grocery anymore, but if people want to do it, at least be honest about not only car payments and gas, but depreciation for all the miles.
Good points. One family car should do in a smaller city. Still saving a boatload due to property and public school tuition.
We own one car in San Francisco for a family of four and it works well. We take the bus or muni train when necessary.
Great, another judgmental know it all that looks down upon those who prefer to live outside the city. I’ve lived in both and prefer nowhere usa I guess.
Did I miss it, I don’t see healthcare as an expense?
Try crunshing the numbers for half of the americans that live below $60,000 a year median wage. How’s that? for a more realistic view.
Sure, here’s a post on counting the numbers on someone who is making $40,000 a year and who eventually achieved financial freedom.
https://www.financialsamurai.com/achieving-financial-independence-on-a-modest-income/
Miserable
Respectfully, that’s not exactly Sam’s target market. You should be spending your time on other sites. It’s not your demographic either.
These expenses seem too low for raising kids in NYC (depending on the neighborhood). I have a 3 and 5 year old, and to live in a top public school zone is closer to 2m+ for a 2 or 3 bedroom condo. Private school is 40-60k per child per year, plus summer camps and school break camps which cost $450-$950 per week per child. Otherwise, a full-time nanny is at least 70-80k paid on the books.
Yes, the original $500K household budget was from 5+ years ago and inflation has increased the cost of everything since. At the same time, the couple has moved out to a lower-cost city to save.
What’s fascinating is that far fewer people are criticizing this household income and spending now.
It is somewhat incredible that your readership now understands this is “normal” and in fact, table stakes.
It was just as true 5 years ago, but only some of us were living it and understood it enough to support your case at the time! Inflation is amazingly powerful.
Would like to nit pick the College Alumni charitable donation line item. Let’s be real, very few if any college or university needs a donation. Especially those attended by the type of people who typically make this kind of money. That’s just waste. Probably should be called a vanity donation instead. Get your name in the annual magazine nonsense.
If a person or family who are healthy can’t live on $500,000 a year they should be mocked and they, frankly, are fools. I assume they are spoiled or stupid or both. Millions and millions of Americans make far less and are ahead of these people. You don’t have to buy every shiny toy, you don’t have to buy more clothes or constantly eat out or order in or go on many vacations you can’t afford. I know people who made that kind of money for years and have nothing to show for it; they even spent their retirement funds before they can retire. And, some after all that are in major debt. You don’t have to send your kid to private school- most places where well-to-do people live have very good public schools, even in cities. It’s a lot cheaper to send their kids to public schools and financially help that public school when needed. It’s their money and they can spend how they want, but please don’t ask most of us to worry or care about their future when they don’t seem to.
***OT– what would be really helpful is an article or series on the difference in starting a S corporation or a LLC- the benefits, the problems, etc. when starting a small (hopefully future large) passive income. Especially important when it comes to taxes, income, etc.
Thanks.
I was waiting for a comment such as your. Thanks for sharing your thoughts. It is a great reminder for such income earners to practice stealth wealth given the lack of empathy some have. And I understand why you don’t have it, because it’s hard to experience what someone else is experiencing unless you’re in their shoes.
“ really helpful is an article or series on the difference in starting a S corporation or a LLC- the benefits, the problems, etc. when starting a small (hopefully future large) passive income. Especially important when it comes to taxes, income, etc.”
There is an article on the subject on Financial Samurai. But it might be better to find such an article written by someone who earns less.
Hilarious you have no empathy for people trying to afford to raise a family while living in a big expensive city, yet you ask Sam write an article on starting a small business?
Do you lack empathy and lack social skills and etiquette? Maybe the reason why you don’t earn as much and are upset at those who earn more is because you lack the emotional intelligence to be liked and to get ahead.
Here is some advice: nobody promotes people who are clueless a-holes.
Exactly. So many miserable people. If u don’t like what Sam writes and/or u aren’t the target for every article – fine! Some will be helpful and some won’t.
Hi Sam,
Would you like to do an article on an IBEW electrician who earned just over $300k CAD last year? If so, I’m happy to provide a draft for you to look over.
Cheers,
Dylan
Sure! Happy to get a draft and hear about how you save an investor earnings, your net worth composition, and how you were able to earn that amount.
Informative and helpful articles are always great! Thx
I don’t think people realize how much waste is in their spending. Most people are paying for way more Internet bandwidth than they actually need. I only pay $30/month. Also paying for unlimited data plans on their phones they rarely use due to Wi-Fi hotspots. I only pay $40/month for 2 phones. I steam all my TV for free using free apps like Tubi. Car insurance can be a big one for sure, make sure your policy is in line with what you actually need and do an annual quote with other companies at the beginning of each year
Could you please clarify the 40% effective tax? A couple filing jointly should only be paying half of that at most which in turn gives 90k more in savings per year.
With City, state, federal, and FICA tax, and the SALT cap, the effective tax rate is closer to mid 30%. 40% is several percentage points high, but the effective tax rate is definitely not 20%.
Do you make $500,000 a year and only pay 20% tax rate? If so, I’d love to see it. Thx
I see, thanks, with no state or city tax yeah effective rate for joint filing is much lower than 30% (~25%) even with more than 500k income, not to mention lower than the 40% i the calculations.
No problem. Can you share your income and effective tax rate?
Last year I paid 19.7% tax rate (all of it to the IRS) on similar income, which I think is a lot since I don’t see 3/4 of it as it was reinvested unearned income. Much of it was 15% dividends, and some tax free income, but unfortunately quite a lot of ordinary income: interest, Social Security, RMDs, short term cap gains.
Cool, but what’s your income? That’s a key variable given the rates are progressively higher the more one makes.
Just under $500K.
That’s a pretty great effective tax rate then! What state do you reside in?
Me and my husband were making 500K together from 2019-2021 and since 2022 the number is 750K. We are living in Texas. Taking last year for example, after 401K/HSA/one person Mega backdoor, we brought home 470K and our expense is 350K with 40K overdue tax. Childcare is 70K (half year W2 nanny service and daycare services combined for 2 toddlers). Mortgage with tax and insurance is 60K. No car payments. Travel expense is 40K. Groceries and going out to eat together are 60K. And the rest is all kinds of spending for ourselves, kids and house. we have 80K left, and they are all in our kids’ 529. In theory, the total saving of last year is 80K of 529 and 70K of retirements.
That’s pretty great to be earning $750,000 in Texas. That’s like earning maybe 1.25 million in New York City or San Francisco.
Do you feel rich? What is it that you two do?
Definitely not. In Texas, the 1% income is 780K and 1% net worth is 5.5M. We fall into H.E.N.R.Y categories in my opinion. There are other things making us not feel rich. For example, the house we own is not in the No.1 school district. And my kids are still going to the public schools instead of private ones. Also, we don’t have any luck on individual stock, meaning there is no windfalls. But life is definitely comfortable and we are not super stressed by work or childcare or financial stabilities. We both work in finance field. He(41) is a SVP and I am a manager(37). Based on my spreadsheet, 2028 maybe the year that I feel rich.
That is surprising to hear not feeling rich with a top 1% income now. What is your net worth?
I have guided for accumulating at least 10X your household income, and ultimately 20X household income as a net worth target to feel financially free / rich.
I agree that if you guys keep on saving and investing aggressively, FI is an inevitability.
3M without counting the properties appreciation, including:
2M retirements and 529
0.5M ETF investing
0.5M of house equities, basically the down payments of two houses we own.
And we will be trying the baby no.3 this year. Probably another reason that we won’t feel rich for a while. Lol
I guess the only thing I wonder about is the assumption that if you live in a cheaper area you can command the same salary. While it is true that your expenses will be less, your salary may also be less depending upon where you live.
Still, impressive tool and analysis!
Generally, the answer is no. However, post pandemic and thanks to technology, the trend to living in lower cost areas the country, and then working remote has increased. So if you have experience and have been able to develop Goodwill at your firm, it’s easier to Relocate and earn the same amount of money.
Great as always but auto insurance for my family, a financed 2019 BMW 5 series and 2017 Ford Explorer along with an owned 2005 Toyota is $3700 per 6 months! Your value may need to be revised or please share your insurance carrier!
Absolutely! Inflation has gone way up since I first posted the $500,000 household budget chart more than seven years ago. A lot of people used to laugh back then, but less so now as they have children and face rising costs.
But if someone with an investor mindset, I’m always thinking in tube timelines, the present, and what could be the future.
My auto insurance is $170 every 6 months and I travel the U.S getting 38mpg. Retired at 38.
yes you need to shop around. We have a 2015 Camry, 2019 Audi Q5, and 2024 Audi S5 (sports car) and “only” pay 2,200 per 6 months – allstate. We are also in a metro area.
You should not be paying more that 1500 per 6 months unless your driving records are terrible.
The best insurance cost I ever got was through root insurance
Wow! I’m paying over $400/mo for an auto policy with Travelers Insurance and one policy with Allstate. This is for a 2022 Honda Civic and for a 2015 Honda Accord. Clean record and have worked in public safety for well over 20+ years. Both ensures have raised auto premiums for me over 20% during the last couple years.
Also, while it is good to shop around, there are also benefits with bundling with a single insurer. I use Allstate for home, auto, and umbrella, and until recently life as well (they sold their life). Have been with them for over 25 years. So we get some bundle discount on each policy.
Thanks – will do. No Accidents or tickets as well!
Come to nyc with 3 kids under 21 that are all drivers and see what works for u – doesn’t work for others….
I love your insights. Your advice and revised budget makes a lot of sense. May I ask why their tax rate is so high? Isn’t the Federal Tax rate tiered? Also, would they get a deduction for mortgage interest and taxes?
Thank you. The high tax rate is Due to the SALT cap deduction of only $10,000, their high income hitting AMT, and them having to pay New York City, state, and federal taxes. As well as double FICA tax. But admittedly, they should be able to lower their effective tax rate by several percentage points with a good accountant.
Although I don’t have a 500k salary, I can relate to high cost of living while raising kids. Very insightful charts. I’m a visual learner for sure and also a sucker for graphs. I’ve tried to calculate different financial outcomes by hand for simple things like annual retirement contributions. But I certainly wouldn’t be able to do the types of comparisons that tool can do on my own. Great stuff! Will check it out further.