High Costs of Living Impact Frugal Dreams!

When I was growing up, my mother would always talk about how “small” her house was and how little money they made.  I knew she was comparing herself to some of the households near ours that were much larger McMansions, which were plentiful in our area.  When I grew up and learned about privilege (we have lots) and poverty and money, I found her constant negative talk about our quite impressively upper-middle-class comfort to be grating.  However, I do think it is natural for people to compare themselves with others they feel are in a similar place to them financially.  We use the “Joneses” as a benchmark for how we are doing in life.  She always felt she wasn’t quite keeping up.

This week, I’ve had to adjust my personal financial benchmarks a bit.

I’ve described Frederick, MD (our wonderful hometown) as having a “moderately high cost of living” because while it is an urban area on the east coast, compared to big government-contract-tech-money neighboring DC-commuter counties Montgomery (where I grew up–with all the McMansions) and Howard (in MD) and Loudoun (in VA), it seems rather affordable.  All three of these counties are in the top 20 counties by income in the country, Loudoun and Howard holding #1 and #2 spots (yes, higher than Orange County in CA).

While we’ve felt pinched by high costs at times, we knew part of our struggle was our choice to live as a single-income family.  I still thought we were about the same as other families in terms of creature comforts; we just didn’t live in the bigger houses or shop as much at the high end stores.  Recently, my eyes were opened to how different our situation is than the majority of our neighbors by a study on poverty in Maryland that adjusted by cost of living in the area.

The United Way studies poverty levels and income in different areas through their study of households that meet ALICE (Asset-Limited, Income-Constrained, Employed) standards based on costs of living for different family structures and different areas.  According to the ALICE report for Frederick County, a family of four with an infant and a preschooler (our situation when we got into our massive debt the last few years) would need to earn over $84,000 for a “bare bones” budget that included no savings.  Considering that even with my recent promotion and significant raise, we have yet to hit that income, I began to understand why we (a family with relatively frugal habits and what I’d usually consider to be a healthy middle class income compared to the rest of the U.S.) are just now beginning to pull ourselves out of a hole.

Digging into this report in greater detail, 51% of the city of Frederick (37% of the county) falls below the ALICE threshold–so we are in good company!  I read a few posts/articles by people amazed at how many people were struggling in Frederick County, but my reaction to this report was the exact opposite.  Especially because only 18% of married parent households were below the ALICE threshold.

I am shocked–SHOCKED–how many people I thought were in the same boat as our family are earning so much more than we are.

However, the fact that most of my peers and colleagues are dual income households (or without dependents) means that comparing myself to them is not reasonable.  I have often felt guilty about not contributing more to charitable causes, stressed that we cannot afford all the activities our children’s peers do, or crippled by fear about our lack of college savings contributions for our children.  It turns out there are reasons other people I know are less worried about this–that second income is an incredible boon to the finances in terms of cash flow.

I’ve found it helpful to remember this context when I can only give $10, though I see everyone else giving $20 or when J’s friends are in twice as many activities as he is.  I am grateful that I can give $10 and pay for the activities we do–we are not really struggling the way the report suggests a family of our means in Frederick would be.

I can feel good when I look at the ALICE budget because we are quite a bit more frugal in several categories than the average budget for a family in a similar situation (notably in childcare, housing, and transportation).  In many ways, it’s freeing to think about how our frugality (stronger than ever as to date in 2018, we have spent about $12,000 less than this time in 2017) is setting us up for greater success and even possible early retirement if we continue on this path and my income rises as expected.

I remain incredibly grateful for our family’s good fortune regarding income and expenses. Some are the result of strategy, sure, but many are the result of incredible privilege and sheer dumb luck.

However, it is also surreal and strange to realize that we are in a quite different class than our peers in terms of income.

How do your perceptions of relative wealth stack up to the reality?  How do you know?

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