Monday, October 23, 2006
Make Poverty History: City Inflation, the incredible rise of the Million Dollar Pauper Executives
Million Dollar Problem : The £500,000 a year breadline
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Last week's supplement with the FT was a special 'bonus' issue of 'How to spend it' magazine. Unfortunately even if you're on a fair whack most of the items are plain ridiculous. Most middle ranking executives in financial services just aren't paid well enough to afford this stuff. On paper they seem to earn a lot of money, but the problem is if you're paid less than £500,000 a year total comp ( approx 1 million USD) in London, and you have a family, you are officially getting by, if not poor and most months you're in overdraft. I'm always a bit amazed to see political and media whining about city pay, especially with the bonus season coming up soon for most banks.
The saying goes a fool and his money are lucky enough to get together in the first place, that's certainly true with me.Most people I bump into these days in London seem to be comping around a million US Dollars/500,000 pounds. Unfortunately you're only as rich as you feel and the majority of these people don't seem to feel very wealthy at all. So what's the problem? The real problem is the rising cost of living for these middle earners. Once upon a time the FT used to produce an annual survey for middle class professionals in London. I haven't seen it for a while, probably because they've just given up. The numbers literally don't add up. So I've done my own analysis. You can use this to try and get yourself a pay rise.
The cost of living in London and environs is now seemingly out of control. £500,000/approx 1 million USD is the basic subsistence total compensation for anyone with 2 children, wife/partner for living a middle class lifestyle-and not a showy one at that, merely comfortable at best. This seems like an absurd proposition, indeed it is, but it's also true. Once upon a time this kind of salary would fall into the category of compensation for super-professionals, partners in Magic Circle Law Firms, Tax Partners in Big 3 accountancy firms, Senior managers in private equity houses, averagely performing minor league hedge fund managers.The problem is wage inflation. These chaps are now routinely taking over a million / 2 million USD. This is driving middle class inflation up.
Consider our middle ranking banking/exec
Income -£500,000 ( let's say 250 base, 250 bonus)
Tax @ 42% ( blended rate including NIC etc) -£210,000
Total annual net income take home £290,000
This equates a monthly post tax income of £24,167 per month.
Here's the breakdown
Background
1x Family House Putney/Chiswick. Purchase price approx 1 million GBP , Deposit £250,000. Mortgage £750,000. Repayment over 25 years @ 5.5%. Add insurance ( e.g Income protection for a proportion of the monthly repayment, etc and some overpayment ). Using the following www.bbc.co.uk/homes/property/mortgagecalculator.shtml.
Household and related -monthly outgoings £16,370
Monthly Mortgage repayment costs :£7,000
Car ( 1xAudi 80-2nd hand , 1x4by4 family car) x 2 leased/monthly repayment : £1000
Petrol :£200
Insurances household and Cars :£400
Life,travel & other insurances x 2 adults : £400 -(no medical insurance taxable but provided by employer)
Food :£1200
Eating out 4xmonth : £800
Cleaner : £200
Gardner :£200
Nanny( shared) :£1200
School Fees ( children aged 5&7) associated expenses £1200
Birthdays, Christmas & associated events :£1000
Gym membership 2x adults :£150
Utilities, phone, heating, electricity, water : £500
Council tax for Putney Band H : £120
Clothing 2xadults, 2xchildren :£ 800
Subtotal £ 16,370
Holidays & leisure ( family) monthly approx £5000
Comprised of the following
Holidays 2 X long weekends Europe
- Venice (total cost £2500)
- Nice ( total cost £2000)
1xlong weekend Cotswolds ( Barnsley House ) -(total cost £1500)
1x European Holiday ( Forte Village Resort Sardinia) 2 weeks-( total cost £15000)
1XCarribean Holiday, include flights ( 2 rooms Sandy Lane 2 weeks) -( total cost £40,0000)
Total p.a 61000/12 = £5083.0
Other & general £3797
Travel Underground, train & Cabs (2x Adults):£400
Coffees, newspapers, minor expenses day to day: £397
Membership Work share participation Scheme :£1000
( though deducted from gross salary net effect)
Credit card bills, unsecured borrowing :£2000
( part payment of principal, some interest)
Subtotal £3797
---------------------------------------------------------------
Total post tax income monthly : £24,167
Total monthly outgoings : £ 25,167
Net monthly overdraft: £1000 per month. RESULT=MISERY.
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Before everyone starts whining about the detail, the above figures are all approximations, but according to the Ivan Boesky research institute they should provide a true and reasonably fair picture of lifestyle patterns randomly drawn from senior executives. Now do you see why everyone feels so poor. My suggestion is to use this piece as a pro-forma, print it off and try and get a pay rise.
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Last week's supplement with the FT was a special 'bonus' issue of 'How to spend it' magazine. Unfortunately even if you're on a fair whack most of the items are plain ridiculous. Most middle ranking executives in financial services just aren't paid well enough to afford this stuff. On paper they seem to earn a lot of money, but the problem is if you're paid less than £500,000 a year total comp ( approx 1 million USD) in London, and you have a family, you are officially getting by, if not poor and most months you're in overdraft. I'm always a bit amazed to see political and media whining about city pay, especially with the bonus season coming up soon for most banks.
The saying goes a fool and his money are lucky enough to get together in the first place, that's certainly true with me.Most people I bump into these days in London seem to be comping around a million US Dollars/500,000 pounds. Unfortunately you're only as rich as you feel and the majority of these people don't seem to feel very wealthy at all. So what's the problem? The real problem is the rising cost of living for these middle earners. Once upon a time the FT used to produce an annual survey for middle class professionals in London. I haven't seen it for a while, probably because they've just given up. The numbers literally don't add up. So I've done my own analysis. You can use this to try and get yourself a pay rise.
The cost of living in London and environs is now seemingly out of control. £500,000/approx 1 million USD is the basic subsistence total compensation for anyone with 2 children, wife/partner for living a middle class lifestyle-and not a showy one at that, merely comfortable at best. This seems like an absurd proposition, indeed it is, but it's also true. Once upon a time this kind of salary would fall into the category of compensation for super-professionals, partners in Magic Circle Law Firms, Tax Partners in Big 3 accountancy firms, Senior managers in private equity houses, averagely performing minor league hedge fund managers.The problem is wage inflation. These chaps are now routinely taking over a million / 2 million USD. This is driving middle class inflation up.
Consider our middle ranking banking/exec
Income -£500,000 ( let's say 250 base, 250 bonus)
Tax @ 42% ( blended rate including NIC etc) -£210,000
Total annual net income take home £290,000
This equates a monthly post tax income of £24,167 per month.
Here's the breakdown
Background
1x Family House Putney/Chiswick. Purchase price approx 1 million GBP , Deposit £250,000. Mortgage £750,000. Repayment over 25 years @ 5.5%. Add insurance ( e.g Income protection for a proportion of the monthly repayment, etc and some overpayment ). Using the following www.bbc.co.uk/homes/property/mortgagecalculator.shtml.
Household and related -monthly outgoings £16,370
Monthly Mortgage repayment costs :£7,000
Car ( 1xAudi 80-2nd hand , 1x4by4 family car) x 2 leased/monthly repayment : £1000
Petrol :£200
Insurances household and Cars :£400
Life,travel & other insurances x 2 adults : £400 -(no medical insurance taxable but provided by employer)
Food :£1200
Eating out 4xmonth : £800
Cleaner : £200
Gardner :£200
Nanny( shared) :£1200
School Fees ( children aged 5&7) associated expenses £1200
Birthdays, Christmas & associated events :£1000
Gym membership 2x adults :£150
Utilities, phone, heating, electricity, water : £500
Council tax for Putney Band H : £120
Clothing 2xadults, 2xchildren :£ 800
Subtotal £ 16,370
Holidays & leisure ( family) monthly approx £5000
Comprised of the following
Holidays 2 X long weekends Europe
- Venice (total cost £2500)
- Nice ( total cost £2000)
1xlong weekend Cotswolds ( Barnsley House ) -(total cost £1500)
1x European Holiday ( Forte Village Resort Sardinia) 2 weeks-( total cost £15000)
1XCarribean Holiday, include flights ( 2 rooms Sandy Lane 2 weeks) -( total cost £40,0000)
Total p.a 61000/12 = £5083.0
Other & general £3797
Travel Underground, train & Cabs (2x Adults):£400
Coffees, newspapers, minor expenses day to day: £397
Membership Work share participation Scheme :£1000
( though deducted from gross salary net effect)
Credit card bills, unsecured borrowing :£2000
( part payment of principal, some interest)
Subtotal £3797
---------------------------------------------------------------
Total post tax income monthly : £24,167
Total monthly outgoings : £ 25,167
Net monthly overdraft: £1000 per month. RESULT=MISERY.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Before everyone starts whining about the detail, the above figures are all approximations, but according to the Ivan Boesky research institute they should provide a true and reasonably fair picture of lifestyle patterns randomly drawn from senior executives. Now do you see why everyone feels so poor. My suggestion is to use this piece as a pro-forma, print it off and try and get a pay rise.
