How good is a 120k salary?

$120k Salary: A Comfortable Living, But Challenges Remain

Earning a salary of $120,000 annually puts you in a financially advantageous position compared to the average American income of $74,580. While this income provides a comfortable living, it’s important to consider the impact of rising mortgage rates and home prices on the housing market.

Affordability Challenges:

Despite their relatively high income, individuals earning $120,000 may face challenges in purchasing a home. According to the National Association of Realtors, the median home price in the United States as of August 2023 is $423,000. With a 10% down payment, a buyer earning $120,000 would need a mortgage of approximately $380,000. Assuming a 30-year fixed-rate mortgage at 5%, their monthly mortgage payment would be around $1,900.

Additionally, rising mortgage rates further increase the financial burden of homeownership. In recent months, interest rates have been on a steady upward trend, with the average 30-year fixed-rate mortgage rate currently hovering around 6%. This would result in a monthly mortgage payment of approximately $2,150 for the same $380,000 loan.

Alternative Housing Options:

Given the affordability challenges, some individuals earning $120,000 may need to consider alternative housing options, such as renting or purchasing a smaller home. The median rent for a two-bedroom apartment in the United States is currently $1,410, which is significantly lower than a monthly mortgage payment. Purchasing a smaller home or a condo may also be a viable option for those who want to own property without taking on excessive debt.

Other Financial Considerations:

While homeownership is a significant financial milestone, it’s important to consider other expenses associated with earning a $120,000 salary. These include:

• Taxes: Income taxes will take a substantial portion of your paycheck, especially if you live in a state with a high income tax rate.
• Other living expenses: Utilities, groceries, transportation, and healthcare costs can add up quickly, reducing your disposable income.
• Savings and retirement: It’s crucial to set aside a portion of your income for savings and retirement planning to secure your financial future.

Conclusion:

A $120,000 salary provides a comfortable living, but it’s important to be aware of the challenges posed by the housing market. Rising mortgage rates and home prices can make it difficult for individuals with higher incomes to achieve homeownership. Alternative housing options and careful financial planning are key to managing expenses and staying financially secure.