Why does it take so long to receive your medical bills?

I recently wrote an article for Insurancequotes.com about why it can take so long to get medical bills after a procedure or a trip to the hospital.

Visit a doctor’s office or a hospital these days, and it could take awhile to find out how much you owe. With the back-and-forth among your health care providers, your insurer and medical billing companies, it’s not uncommon for patients to wait months to receive all of their medical bills.

But with all of our advanced technology and instant access to information, why does it take so long?

We reached out to several health insurance companies for comment but didn’t receive any responses.

Industry observers pin the blame on a complex web of communication among various parties. Others say there’s no rational reason.

Multiple parties involved

Often, several players are involved in generating a medical bill. Illene Ferrell, president of Advanced Billing Professionals, a company that provides medical billing services, says billing typically involves your health care provider, your health insurance company and, in many cases, a third-party billing company.

When you visit a doctor’s office or hospital, it typically checks your insurance information to find out what’s covered and what’s not. After performing services, the office or hospital will submit a claim to your insurance company, either on its own or through a billing company. Patients usually are responsible for a deductible and possibly a co-pay for the service provided. While deductibles usually are paid upfront, co-pays often are billed after the visit.

“It usually depends on whether the doctor is in the network and the rules of the insurance company. It can really differ depending on the health care provider,” Ferrell says.

That final bill, or collection of the co-pay, is what leaves many patients waiting weeks or months. And when several services are delivered during one visit, several bills could arrive over a lengthy period.

John Metz, chairman and CEO of Just Health, a health care consumer advocacy group, says a patient could receive a bill from a doctor, a lab and even a second doctor who read the test results. Combine that with complications, such as delays, missing invoices or late billings by health care providers, and it can leave some patients waiting a long time to find out how much they owe.

Hospital complications

Billing can be much more complex at hospitals. When a patient visits a hospital for a more complex procedure, such as cancer treatment, it can involve several departments or providers, many of which bill individually. That’s why patients may sometimes receive one bill from the hospital, another from the anesthesiologist and yet another from the radiology department.

And to make things even more complicated, billing procedures vary by hospital — some may send one bill immediately, others may send numerous bills over the course of several months.

“When you got to a hospital, all kinds of people come out of the woodwork wanting to bill you. You might get the facility bill immediately but might not get the anesthesiologist or other bills for months later,” Palmer says.

Jennifer Nichols, vice president of Advanced Billing Professionals, a medical billing and claims processing company, says a number of other factors can cause delays. These could include incorrect processing or coding (how insurers identify procedures or expenses) that’s rejected by an insurer, or even disorganization and delays at a doctor’s office or hospital.

“If the insurance company sends something back, it can cause delays. Some doctors do their own billing as well, and there can be inefficiencies,” Nichols says.

No ‘rational reason’ for delays

Paperwork shuffling between insurers, health care providers and medical billing companies still might not fully explain why some patients have to wait months to receive a bill or bills. Metz says there’s “no rational reason” for such delays to last months or even more than a year. He says health care providers, insurers and billing companies have the technological capabilities to generate bills within days of a hospital stay or doctor’s visit.

Unfortunately, there isn’t much patients can do to speed up billing other than to call their health care providers and insurance companies. Nichols says you can request a bill, but you can’t be assured that it contains all of the charges. Most insurers let patients access their claims online.

“We don’t like to see patients wait. The only thing patients could do is check with their insurer to see what has been submitted. But if the (health care providers) haven’t submitted all the bills, you won’t know what else is out there,” Nichols says.


There’s no reason for a parent not to have life insurance

I recently wrote an article for Quicken.com about why parents need life insurance.

It’s crazy to think we’d even have to mention this but recent survey data indicates that far too many parents go without life insurance. According to the Genworth Financial LifeJacket Study, 69% of single parents and 45% of married parents lack life insurance coverage. Gregory Fairchild, research project developer and University of Virginia Darden School Professor, said it’s a growing problem because many children have few or no options if they have to deal with the unexpected death of a parent.

Protect your family

Basically, the younger the parent, the fewer the assets, and the greater the debt, the more catastrophic it can be for surviving family members when a parent dies without life insurance. What makes things worse, is those who go without life insurance are often the ones who need it the most.

“We find that many single parents are simply too busy – or even too scared – to properly evaluate their life insurance needs,” said Fairchild.

Life insurance is essential for parents because it protects your child’s future in the event of your death. The idea is that should something happen, you don’t want your family to suffer financially. You want your loved ones to know they have enough money to pay the bills and live comfortably.

Joe Pitzl, CFP, of Intelligent Financial Strategies said the last thing you want is for family members to compound their grief by worrying about how they’re going to cover the mortgage or a child’s tuition.

“Your family and/or children are relying on your income and if you die without life insurance you can leave your family high and dry,” he says.

Mari Adam of Adam Financial Associates said one of the reasons so many parents go without life insurance is because they don’t want to think about death. It’s an uncomfortable feeling for many to discuss what would happen if they were to perish in a car crash or drop dead from a heart attack.

Others are uninformed and believe that life insurance is expensive. While whole life policies can be prohibitively expensive, Adam said term policies for parents in their 20s and 30s are dirt cheap and can be obtained quickly. ”It’s the one kind of insurance that is actually cheap. I think many people don’t have it because they don’t realize how cheap and easy-to-get term insurance is,” said Adam.

Rates can vary, but for a 30-year-old non-smoker, a $250,000, 20-year policy can be had for as little as $200 per year. That’s only $16 per month to ensure the financial security and future of your spouse and children. Adam recommends that parents avoid expensive whole life insurance and start with a term policy that offers the maximum benefit for the lowest price. Although such policies are often marketed for their “investment” benefits, Adam said you can come out ahead by buying term and investing the difference.

“You can probably talk to someone on the phone for ten minutes and get it done. It’s critical because we’ve seen people who don’t and the kids are put into a horrible situation,” said Adam.

How much do you need?

A common rule of thumb says you should have enough life insurance to cover between six and ten times your annual income. But this also depends on the size of your mortgage, any debts you may have, how many children you have, and your expectations for their future. You should generally factor in the cost of paying off the mortgage, any college tuition and expenses, and a reasonable annual income to cover living expenses for the family.

If you have a spouse, it’s not that he or she will never work again, it’s just that you want to have enough insurance to provide a cushion so that they can continue their lifestyle without your income. You’ll also want to factor in the cost of your own funeral. Because term insurance is to inexpensive, it doesn’t cost much more for additional coverage.

“It’s really cheap, you can get a million dollar policy for not much at all. The cost of obtaining more coverage isn’t much more,” said Adam.

If you don’t want to buy one big policy, another option is to create a “layered” life insurance plan with terms that will cover you for thirty years. The idea is that as you get older, you have more assets to leave behind, so you need less insurance. While you may need $300,000 in coverage when you’re thirty, you may have more than $300,000 in assets by the time you are sixty.

So, by creating a layered policy, you get more insurance in your early years and then less insurance (and saving on premiums) later down the line. Such a plan could include a $100,000 30-year plan, a $100,000 20-year plan and a $100,000 10-year plan. So, in the first ten years you’ll be insured for $300,000; between years eleven and twenty, you’ll be covered for $200,000, and in the last ten years you’ll only be covered for $100,000.

“You project your need based on today and at several breakpoints in the future. It could cut the premiums in half and maybe allow you to afford more coverage earlier on,” said Pitzl.

Marriage does have some financial advantages

I recently wrote a piece for Interest.com about how a friend with benefits is nice but a spouse with benefits is better.

People spew a lot of negative stuff about marriage these days but the reality is that if you’re already in a long committed relationship and have been living together for years, there could be some great financial benefits with tying the knot. Of course, no one would suggest marrying for money or tax savings but there are a few advantages that come with making the commitment.

Advantage 1. Two is better than one.

Let’s face it. Whether you’re trying to lug a sofa upstairs or trying to save for a house, two is always better than one. It’s good when someone has your back and can lend you a hand. When you’re married, you’ve got two incomes and two brains working together.

Hopefully you have double the assets or at least a little more money than you would if you were single. It’s even better if you’re both on the same page about investing, saving for your future and staying out of debt. You get a lot more financial security in so many ways. Even if one spouse stays at home or is a student, there’s the potential for future earnings.

Some married couples keep their finances separate, some merge them. But in any case, you both will be working together for your common good. Through compounding, your investments can grow even faster if you’re saving twice the money. While you think you may have all of these things with a “friend with benefits,” your commitment is that much stronger when you’re married. You’re not only joined financially, emotionally and physically — you’re joined legally.

Advantage 2. You can have more health insurance options.

While more companies are offering benefits to unmarried partners nowadays, you still have the most options when you’re married. If you’re both employed at companies that offer health insurance, you then get two options to choose from. Pick the best and least-expensive coverage, then decline benefits at the other company. If you’re self-employed, having a spouse with health insurance benefits at work can be a lifesaver.

Because your only other option would be to get an individual plan on the open market, you may save 50% or more in premiums should you be insured through a spouse’s plan at an employer. Also, an employer’s plan usually isn’t going to decline you based on any preexisting conditions. Regardless of your medical history, you should get the same rate that other spouses would. How much you save will depend on the individual company plan. Some companies will cover up to 80% of an employee’s premiums but won’t cover anything for spouses.

Advantage 3. You can save big on taxes.

When you’re married, you have the option to file your taxes jointly or separately. What is best for you depends on your income, deductions and various other factors. But at least there is the opportunity that you can save on taxes. In some cases, it can add up to thousands of dollars.

Don’t listen to the talk about the “marriage penalty,” which has largely been erased by changing tax brackets and increased deductions. If you have two big earners, you could pay slightly more in taxes, but there’s not much of a difference for most people. If one spouse makes a fair bit more than the other, there could actually be considerable tax savings.

Let’s say one spouse makes $75,000 per year and the other, $35,000. As a single filer with the standard deduction and personal exemptions, the first spouse would owe $12,500 in taxes. The $35,000 earner as a single filer would owe $3,400. That’s a total of $15,900 for the both.

But if they were married filing jointly with $110,000 in income, they’d owe $15,000 in taxes. That’s $900 in savings in federal taxes alone.

And if one spouse is a stay-at-home parent, student or doesn’t work, the savings can be even greater. Let’s say you’re making $60,000 per year, your partner is making $0 per year, and you get married. The minute you get married, your standard deduction will double and you’ll drop from the 25% tax bracket to the 15% bracket. With a $60,000 income as a single filer, you’d owe $8,750 in federal taxes. But if you got married and your spouse had no income, you’d pay only $5,300 if you filed jointly.

Advantage 4. You can get a break on auto insurance.

Men, in particular, can see a massive reduction in their auto insurance premiums once they get married. Insurance companies make men in their 20s pay through the nose. But they seem to think that when you get married, you’re less likely to drive like a maniac. Your liability insurance could drop by 50% or more.

Insurance companies also provide more discounts when you combine policies with multiple cars and drivers, so the savings can add up more. In many cases, the couple may actually pay less when they come together on the same policy than they did on their individual policies. Of course, all the financial benefits of marriage assume you marry the right person at the right time for the right reasons.

Of course, just as marriage can offer many financial advantages, it can also be a financial catastrophe if it doesn’t work out. The average cost of a divorce is roughly $20,000. And that doesn’t even include things like alimony and division of assets. No one should ever get married for financial reasons or to save a few bucks. But if you’re already in a committed lifelong relationship, walking down the aisle can bring some financial security.

Save big and boost your financial security by driving your vehicle as long as you can

I recently wrote a post for Interest.com about how I’ve boosted my financial security by keeping my truck.

Sometime this month the odometer on my truck will hit 100,000 miles. 

It may not seem like a big deal for some people but surveys have found that many Americans trade in their vehicles and upgrade long before hitting this mark.

For me, hitting the six-figure mileage mark on my 2003 Nissan Frontier is only the beginning. I plan to drive it as long as possible. Certainly at least another 5 years and 65,000 miles. Hopefully beyond that.

I will buy a new truck when reliability becomes an issue or I have to spend too much on repairs. It’s not because I don’t have the money, it’s because I’ve made a conscious effort to forgo automotive luxury to boost my financial security.

Aside from a mortgage or rent, a car note can typically be one of a consumer’s biggest expenses. And if you don’t make your vehicle purchases wisely, it can be a lifelong financial drag.

While a vehicle is a necessity in many parts of the country, it’s a terrible depreciating asset that has high costs and can be next to worthless by the time you get rid of it.

On strictly financial terms, you want to spend as little as possible on a vehicle and drive it as long as you can. In a perfect world, you’d pay cash for your vehicle and not borrow a dime. But that’s not a possibility for most people. The next best step, depending on the interest rate you’re paying, is to pay off your loan as quickly as possible.

I paid off the loan on my current truck in 2007, two years sooner than the five year term was up. I can not tell you how wonderful it has been having no car note for five years.

During that time, that monthly payment, which would have otherwise gone to a lender, has been going to my Roth IRA, investments and a savings account I have set aside for a new vehicle.

I can honestly say that I owe a fair part of my financial security to my lack of a car note. I consider my truck not just a thing to get around but a tool that saves me money. Because every day, week, month and year longer I drive it means more money in my pocket.

If I were to buy a new vehicle today, I’d likely end up with a $300 monthly note based on the purchase price, my trade in and down payment. So the way I look at it, I’m saving $3,600 per year by continuing to drive my truck. This doesn’t even factor in the increased cost of my collision and comprehensive insurance for a new vehicle.

It is getting older and I do expect to have to put a little money into it. I’m going to need a new timing chain, a new clutch and possibly a few other repairs in the coming years. But even if I factor in $800 for an annual repair budget, that’s still $2,800 per year, or $233 per month I’m saving.

And since I save and invest that money rather than spend it, those savings add up even more. If I can earn a 6% average return on that $2,800 per year, that means in three years, I’ll have an extra $9,500 put away. If I can manage to drive my truck another five years that’s $16,730 I’ll have saved. Even if I have to dump another $2,000 in the truck over those years, that’s almost $15,000 I’ll have saved.

Not only can that money go to more important things like my Roth IRA, daughter’s education fund and emergency fund but I’ll have far more money for a down payment on my new vehicle.

When the time comes, I should be able to walk into a dealership and easily put down $10,000 to $15,000 on a new truck. That means I’ll borrow less, have less debt and will pay less in interest.

When you buy a new car every three to four years you are literally throwing thousands of dollars down the drain. Not only do you take massive hit on depreciation but you could also have more than $1,000 in tax, title and license costs.

Unless you’re raking in the big, big bucks, constantly chasing a newer car is undoubtedly taking away from other areas of your financial life. No matter how much money you make, 99% of us are constrained by some type of financial limits. You have to recognize those limits.

I can live with a few scratches, squeaks and outdated vehicle features. I’d rather provide for my family, save for stability, travel, spend money on having fun and sleep soundly at night rather than give all that up for a nice hunk of metal in my driveway. It’s just a matter of priorities.

Would you introduce your teens to credit cards?

I recently wrote an article for Interest.com about introducing your kids to credit cards.

When I’ve covered this in the past, I’ve often heard mixed reactions on the idea.

On the one hand, there are some who say it’s a horrific idea to ever introduce teenagers to credit cards. On the other, there’s the thought that by introducing them to credit cards under supervision and educating them on the dangers, it will help them handle credit cards responsibly when they’re old enough to get their own.

For many young people, a credit card is one of the only ways to start building their credit. You can tell them to avoid credit cards but at some point they’re going to get one. According to the 2010 Survey of Consumer Payment Choice, Americans hold an estimated 609.8 million credit cards with the average credit card holder having 3.5 cards. And the average age of which a consumer under 35 obtained their first credit card was age 21.

If you do introduce your child to credit cards, at what age do you do it?

The steps I highlight in the article include:

  • Giving them a crash course in credit.
  • Starting them out with a prepaid debit card.
  • Graduating them to a checking or savings account with a debit card.
  • Taking the training wheels off and getting them a real credit card.

Of course, the first step is probably one of the most important. Many teens (as well as many adults) don’t realize the devastating consequences of buying things on credit and making the mininum payments.

Some teens don’t understand that when you charge stuff on a credit card, a bill comes due at the end of the month. Even fewer teens understand interest and how it is calculated.

Review one of your credit card statements with them.

Explain the different elements such as interest rates, interest charges and minimum amount due.

Then have them play with an online debt calculator to figure out how long it would take to pay off your balance with just the minimum payment.

Next, have them plug in the cost of an item they want at a card’s interest rate to see how much it could truly end up costing to buy it on credit.

Throw in some big numbers and use it as a financial version of a “scared straight” program. Show them how a $100 shopping trip to the mall can turn into a $250 one with interest and late charges.

Illustrate the dark side of credit cards, and don’t be scared to instill in them a financially healthy fear of interest charges, unnecessary fees and runaway debt.

What would you do? Introduce them now as a high school senior? Wait for them to go to college? Never bring up the matter and tell them to never get a credit card?

Read the full article at Interest.com.


Lending to your child

I recently wrote an article for HSH.com on being your child’s mortgage lender.

As it is becoming more difficult for people in their 20s and 30s to qualify for mortgages due to higher lending standards and bigger down payment requirements, some of their baby boomer parents are stepping in to help.

According to Walter Molony, a spokesman for the National Association of Realtors, “26 percent of first-time homebuyers received a gift from a relative and 7 percent borrowed money from a relative.”

With yields on CDs and T Bills so low, some parents can even make a little profit and find it to be a decent investment. If they most they can earn on a T Bill is 3% and their child can’t get a mortgage because they don’t have the down payment, the parent can lend to the child at a rate of 5%.

If it is something you decide to do, you’ll have to honestly evaluate your child’s credit worthiness and their ability to make the payments on time.

Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., said with so much risk involved, you shouldn’t agree to anything on a handshake.

“Unless this is a gift, you need to treat your child like you would any other borrower,” says Adam. “You need to go through all the formalities and treat it as a business deal.”

Read the full article at HSH.com.





Track your net worth

Your net worth is simply your assets minus your liabilities. Basically, all the stuff you own minus all the money you owe.

It’s your house, your car, your investments, your retirement fund, your savings accounts, checking account and cash minus your mortgage, car loan, credit card debt and home equity line of credit.

It means that if you had to sell everything you own and pay all your debts right now, this is how much money you would have.

You should track this because it gives you a good clear view of your financial health. And when you track it from month to month, year to year, you can see if you’re headed in the right direction.

A 2011 study from the Economic Policy Institute revealed that the median U.S. household had less wealth in 2009 than it did in 1983. In 2009 dollars, median wealth fell from $71,900 in 1983 to only $62,900 in 2009.

It also found that in 2009, roughly one in four households had zero or negative net worth while 37.1% of house holds had a net worth of less than $12,000.

It doesn’t matter if you have a net worth of only $230 or even a negative net worth – you need to track it.  Your net worth is a measure of your overall financial progress and monitoring it is a daily incentive and reminder to make the right financial decisions that you need to be making. If you’re on track and in line with where you should be, tracking your net worth and seeing that progressing can also be a confidence builder. Even if you’re trying to emerge from negative net worth, arriving at zero net worth could be a milestone.

“It can help you see what kind of progress you’re making and help guide your financial priorities. Along with a solid budget, keeping an eye on your net worth can help keep you moving in the right direction,” said certified financial planner and motivational speaker Nancy Butler.

The easiest way you can track your net worth is with a spreadsheet. All you need to do is create fields for all of your assets, all of your liabilities and then create formulas that subtract the difference. Each month, you can plug in your balances to get an updated picture of your net worth.

There are many free net worth spreadsheets available online including this one at CNET.com that you can download and customize. You can also use software such as Net Worth Express or My Financial Statement.

When you do track your net worth you should also be sure to look at two numbers, your total net worth (including your home) and your liquid net worth (not including your home). That’s because depending on your financial situation, including your home in your net worth can give you a skewed, and perhaps too optimistic, view of your finances.

If after deducting all of your liabilities you have $80,000 in home equity and $15,000 in liquid assets, that $95,000 in net worth isn’t as great as it sounds. That’s because the equity in your home is worth nothing until you sell the home, if you even plan on selling it. So in reality, at this moment in time, your net worth is really only $15,000.

There are going to be points in time when your net worth takes a little dip. During some months you’re going to have big expenses. You might have a big home repair expense, have to pay tuition for your child or you might take $7,000 out of your savings account to buy a new car. Then there are months when the stock market might take a hit and your portfolio is down by 5%. This is fine.

It’s perfectly normal to have months where your net worth takes a dip but what you should see is a steady growth upward over time. That is why you  want to track it over the long run.

Does a $100,000 income really go that far anymore?

NOTE: An article I wrote years ago for Bankrate.com recently ran at Business Insider. It’s still relevant today and while only a small percentage of Americans earn above a $100,000 salary, that six-figure income may no longer serve as the benchmark of wealth.

One hundred thousand dollars. Since the 1980s, the magical “six-figure” salary has been a benchmark for financial success.

Not too long ago, that income often meant two nice cars in the garage of a large house, fun family vacations and plenty of money left over to save for retirement and college tuition.

But times have changed. Not only has standard inflation steadily eroded the real value of a $100,000 income but the cost of housing, health insurance and college tuition has risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle class life and that six-figure luxury quickly turns to six-figure mediocrity.

Less than 20 percent of American households even break the six figures. but many who earn incomes near the mark find that their prized incomes don’t take them as far as the hype. Many say that while breaking the $100,000 annual income mark may still be an impressive milestone, it doesn’t exactly roll out the red carpet.

Costs eat away at benchmark

According to the U.S. Census Bureau, only 5.63 percent of individual income earners and only 17.8 percent of households had incomes of $100,000 or more in 2006. In fact, the median annual household income for 2006 was $48,021, a little less than half of the six-figure benchmark. The overwhelming majority of Americans still look up to a $100,000 income, but the expectations of what comes with that income are rapidly slumping.

The Labor Department recently revealed that the inflation rate for 2007 was the worst in 17 years, with consumer prices rising 4.1 percent, compared to 2.5 percent in 2006. Much of this was fueled by energy costs (up 17.4 percent for the year) and food costs (up 4.9 percent for the year), both of which were the biggest increases since 1990. Just to keep up with standard inflation, a $100,000 salary in 1990 would have to be $162,760 today. Or reversing the view, a $100,000 salary in 2000, adjusted retroactively for inflation would only be worth $82,609 today.

“What would have cost you $100,000 in 1976 would cost you $381,000 today. That’s just the inflation and there are so many other things that have grown very expensive,” says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.

Adam points to health care as a major expense that has grown almost twice the rate of inflation. The Kaiser Family Foundation, which tracks the costs of health insurance, found in 2006 that insurance costs had increased by a whopping 78 percent since 2000. The total cost of health insurance now averages $4,242 per year for individuals and $11,480 for families.

Adam says college costs have also grown tremendously in recent years. According to the College Board’s annual “Trends in College Pricing” report from last year, published tuitions at universities are up 35 percent in five years, the largest increase of any five-year period in the 30 years the report has been published.

“These are things that everyone spent money on 30 years ago but the percentage of what was going out of their paycheck is a lot higher now. More of the income is being taken away to pay for a lot of these things,” says Adam.

The cost of housing has also played a major role in diminishing the power of a six-figure income. In many parts of the country housing prices have outpaced wage growth for almost a decade. The Housing Affordability Index, which compares the cost of housing against median family income, dropped considerably between 2000 and 2007.

In 2000, the median family income was $50,732, and the median home price was $139,000. While median income grew to $59,157 in 2007, median home prices skyrocketed to $229,299. In those seven years, median home prices had risen 64.8 percent while median incomes had only risen 16.6 percent.

“Without a doubt, the housing situation is the biggest thing that eats into our income,” says Brian Neale, an investment manager from Westminster, Md.

Money doesn’t go far as you would think

Neale, 33, says he surpassed the $100,000 mark last year but says that between mortgage payments, the high price of heating fuel, gas, food and everyday items in life, his salary doesn’t go as far as he thought it would. Neale is married with three children and says that his extracurricular real estate and investment activities help them buy the extras in life.

“Now that I’ve made (a $100,000 salary), it’s not all it’s cracked up to be. We make sacrifices. It’s not like I tell my kids we’re going to have to eat peanut butter and jelly every night. We live well but I wouldn’t consider it anything extravagant,” says Neale.

Many now consider $250,000 the new $100,000 income. Adam says that level of income is typically required to provide what many have before expected of a six-figure salary. Adam also points to other expenses that are not necessities but are considered part of a middle class lifestyle — things like cell phones, high speed internet access, vacations, karate lessons, iPods, laptops and digital cameras.

“What you might think people deserve for a person that has a reasonable income is excessively high. Add in all the other expenses and there just isn’t anything left and that’s part of the reason why a $100,000 income isn’t going that far,” says Adam.

Geography and lifestyle factors

With the cost of housing typically the largest expense for a family, location is one of the most important factors in dictating the power of a $100,000 income. While that level may not go far on the coasts, it may still provide a fairly comfortable lifestyle in much of Middle America.

Jeff Eschman of Brazos Financial Advisors in Houston, says that in much of that state $100,000 income earners can enjoy very comfortable lifestyles.

“I don’t see many families who are at the $100,000 income level currently making a lot of sacrifices. Families at that income level should be able to afford a very nice lifestyle in this area,” says Eschman.

In cities like San Francisco; Manhattan, N.Y.; Los Angeles; San Jose, Calif.; and Washington, D.C., the cost of housing alone can take a major bite out of a $100,000 income. A survey by management consultant firm Runzheimer International in 2006 considered what a typical family of four earning $60,000 per year annually spends and then compared the costs of maintaining that lifestyle in more than 300 cities.

Using their findings, a typical family earning $100,000 per year would need to earn $244,333 in Manhattan and $203,000 in San Francisco to maintain that same lifestyle.In low cost areas, Eschman says that people at that income level tend to run into financial problems when their lifestyle outpaces their income.

While this is a problem for many Americans in all income levels, top figure earners are not immune from it. Adam says she has even seen people with incomes of up to $300,000 having trouble covering their expenses.

Choice is yours

Bryce Danley, a Certified Financial Planner and advanced financial adviser with Ameriprise Financial, says the real power of any income is all about perspective and choices. He says buying too much house, spending too much on automobiles and having too much debt is commonplace with families in the $100,000 income level and largely responsible for the six-figure pinch.

In one example Danley uses a household that earns $100,000 a year, owns a $375,000 home, leases 2 vehicles for $450 each per month and pays $250 per month on credit cards.

After that household pays the mortgage, car notes, debt and takes out social security and federal income taxes, it has spent 75 percent of its income.

“This is a very typical situation for someone in that income range. And we wonder why average Americans don’t save any money — it’s because of the decisions they made in housing, cars and debt,” says Danley.

While the real power of a $100,000 income has been drastically diminished, it highlights that the burden of increasing costs on those making less is even more profound.

Danley says that regardless of income level, Americans’ penchant for debt, consumerism and outspending themselves is what ultimately causes financial disappointment or stress.”There is still only a small percentage of people making this income. It points out that for your average person in your average job, this is becoming an increasingly hard country to live in,” says Adam.