BudgetFollowing on Paula’s excellent and provocative post, “What Class Are You?” I wonder what we do to ourselves when we’re not honest about what class we’re actually in? For example, what happens when we think we are middle class, and try to behave middle class, but we’re not?

I personally experienced this earlier in my life, when I thought I was middle class and felt I had to have what middle class people had, but actually I was working class (at best). It got me in to serious debt!

Now according to the same Wikipedia article that Paula referenced, $67,348, was the median income for a household of two earners in the U.S. for 2003. With inflation, that’s about $73,500 today. Since this is the ‘median’ or dead-center of the income ladder, this has to be “middle class” right?

Let’s see if it will fund the kind of lifestyle we would associate with being middle class, for a purely hypothetical gay couple with no kids.

Gay people must file taxes (federally) as singles, so if each partner earned $36,750, that’s $4457 in federal taxes after the standard deduction, minus another $604 or so in state taxes after deductions. Not to mention Social Security ($2279) and Medicare ($533) payroll taxes each year. So our median gay couple is now bringing home $28,877 a year each, or $57,754 together. That’s a sizable $4813 a month. Let’s try to be “middle class” within that budget.

For most people, “middle class” means owning your own home. The median price of a home in the U.S. in December 2006 was $220,000, so with 20% down, that’s a mortage of $176,000 at about 5.8% interest a year. With interest, taxes and insurance, we’re looking at a mortage payment of about $1662 a month. Home maintenance and repairs are generally figured at 2% to 4% of the home’s value per year, that’s another $370 a month just on the low side. (As a homeowner I actually find it’s more like 4%, but I’ll play along).

Each adult needs his or her own car to get to work. Buying an average car new and financing $15,000 of it means a car payment of about $380, each, plus insurance of about $840 a year, each, plus gas and oil change. Then there’s the usual health insurance, groceries, toiletries and utilities, i.e., basic necessities. As I see it, that comes to $4242 a month”and we’re still within budget.

Monthly Necessities:
Housing: $1662
Home upkeep: $370
Car payments (x2): $760
Car insurance (x2): $140
Gasoline, oil, etc. (x2): $120
Health insurance (x2): $160
Food: $600
Haircuts/toiletries: $70
Water & Sewer: $80
Electricity: $90
Heat: $100
Phone: $60
Trash collection: $30

But let’s face it: being “middle class” is more than just getting by with basic necessities, it’s about having some entertainment, maybe a dog, certainly at least one vacation a year. Let’s see if our median income gay couple can afford that:

Monthly Middle class indulgences:
Expanded cable: $120
Eating out twice a week@$30 a pop: $240
Entertainment (concert, movies): $80
Clothing: $100
Pet costs: $80
$3000 Annual vacation (monthly cost): $250

Whoops! Those ‘indulgences’ come to $870 a month, which with our necessities is $5112. That’s almost $300 over our monthly budget for the median household in America. So we’re going to have to cut back $300 in there somewhere: either no vacation, or no eating out (ever!) AND no concerts or movies. Or we could limit ourselves to one car for a two-earner family, or else forgo any and all home maintenance until the place falls down around us. None of these are attractive choices for a “middle” class gay couple.

Even so, notice I’ve put in zero expenses for paying off credit card debts, student loans, gym fees, hobbies, weekend trips, Christmas or other gift-giving. Notice also there is ZERO SAVINGS happening: no 401(k), no emergency fund. If we were to slice off even 10% of our gay couple’s take-home pay (that’s $481) for retirement or other savings we’re now nearly $800 in the hole each month ($481+$300).

So much for the myth of the middle class: on a median two-earner household income of $73,500 (gross), you can’t save for retirement and take an annual vacation”or if you do, you have to cut almost $800 from your expenses somewhere else. But I think many of us (gay and straight) are in denial about this. Our friends take nice vacations; AND they have a pool. My buddy gets a nice new outfit every month, and eats out 3 or 4 days a week.

But that’s not reality; it’s not sustainable on a median income. By my calculations above, the couple would need to earn at least $100,000 (before taxes) to be able to have and do all those things, and even they might be tempted to rack up debt chasing the middle class dream.

Maybe earning the ‘median’ income isn’t middle class? Or maybe the middle class is confused, and think it is grander than it is. Either way, we need a reality check, to live below our means and actually improve our financial situation versus allowing our fantasies to bury any chance of a secure financial future.