If I had one year of $172,000 income, I could bank it and live off the interest for the rest of my life. People who make that much and don't feel "rich" feel so because somehow they incur $172,000 in expenses every year. I'm a tutor and often work with kids of rich families, and it astounds me what their parents spend money on (think private jets and race cars).
Actually, I work with kids of poor families as well, and I could say the same, although the indulgences are more mundane (expensive cell phone plans and TV packages).
Here in Uruguay, I'd buy 2 or 3 houses, which would give a return of about U$ 1000/month.
That's U$ 12k/year right there (and rent is inflation adjusted here).
Yes, we do have a housing boom here, why do you ask :) - it's far cheaper to own than to rent, but most people don't have the capital - I rent, as I make U$ 13k/year
Right now I live off of about $12k/year, and I'm paying about $4800/year in loans (which will be paid off soon enough). That works out to about $7k/year.
Unless your $7K expenditure calculation includes putting away quite a bit of savings (Which, unless there's a massive early repayment fine on your loans, it shouldn't), you'll also need to pretty much halve that optimistic 4% to ensure that your capital doesn't decline in real terms. That's assuming inflation remains as stable as it currently is.
I did some back-of-envelope calculations, a few years ago, based on the inflation common savings interest rates of the time, and median salaries where I lived. Basically, given £1M in a savings account and no other income, someone who lives as though earning the median salary (including reinvesting about 30% after tax), could expect to start eating into their capital (in real terms) within about 3 years. I can't remember how long it would take for their capital sum to actually drop below £1M, but I do remember it taking about 30 years to drop to 0.
Now, you're obviously a bit more frugal than the average bear, but you're talking about having a tenth of that capital, and a sixth of that expenditure, which already doesn't add up. Also, my calculations above were made when even a risk-free savings account would score you nearly 5% APR.
$7k a year would be impossible for me and most other people. My rent alone is $12k/year. But, say to be frugal, and this isn't my current situation be what I imagine would be the bare minimum: $400/mo rent, $100/mo car insurance, $30/week in groceries. I have other necessities but for bare minimum that's already well over $7k/year.
Rent is spot on. My car insurance is about $800/yr (although it seems MA is a particularly cheap state for insurance). I do not have an exact figure but I believe my weekly grocery bill to be less than that by about 1/3 (not eating meat helps). That brings the total to $6640/yr.
Not counting gas (which I mostly use for my hour-long commute), I further spend $20/mo on internet, and $60/mo on 3G service (which I consider a luxury). That brings the total to $7600/yr. So, I exaggerated slightly. I would need closer to a year and a month's worth of $172k income to meet this requirement.
Maybe, but probably not comfortably. After taxes, that 172K will be about 120K. Even if you were to somehow make 8% interest on your money for the rest of your life, that's still only $800 a month.
That's about what I make now, and I'm living pretty damn comfortably without racking up debt (Internet-enabled phone, car, eat organic food, have plenty of free time for recreation).
Actually, I work with kids of poor families as well, and I could say the same, although the indulgences are more mundane (expensive cell phone plans and TV packages).