Broke making $150k a year

Here's a depressing story from CNN about a couple with 4 kids who are now neck deep in debt and broke. They had 1 kid, planned on having a second and instead had triplets (another reason not to use fertility drugs!).

The real tragedy of this story though is that they had $175k in savings and an income of $90k a year entirely from one spouse. After their triplets came, their savings vanished and they went into debt. I wondered how 3 healthy babies could drain $175k in such a short time when you have $90k a year in income and a stay at home mom!

Now 4 kids is a lot. But many families have more and make it just fine. Yet this couple was spending $2k a month on 3 part time caregivers! Then they had real estate investments, which began to become unprofitable (or even break even). In 2 years they went from $90k a year and $175k in the bank to over $155k in DEBT plus a loss of the $175. 3 extra kids had cost this couple $165,000 a year! That's $55,000 PER CHILD.

It gets worse. They sold some giant farm mansion they were building, cashed out some unpaid leave, yet they were still $127k in debt. They worry about paying preschool tuition (are you kidding?) and saving for college. At the same time, the husbands income has increased a large amount and yet they still can't get by!

They should sell all their real estate (ticking time bombs), stop sending the kids to preschool, get rid of all the nannies, stop contributing to the kids college funds, rent a small house, live off of $50k a year and pay off the debt within one year and slowly begin increasing their lifestyle while socking away most of their income. In 5 years they could be better off than when they started.

This couple has about $150k in income and a 12% employer-provided retirement savings, yet they are wallowing in $120k of debt.

Why is this couple in so much trouble? In my opinion, its because they can't admit they're totally broke.

Dennis says he agrees with the advisers that the couple should pay down their debt and create a cash reserve. But he's reluctant to diversify as much as they suggest and wants to keep enough free cash on hand to cut real estate deals. "I'd like to have $75,000 in my foxhole waiting for the next thing to jump up and buy," he says.

There are so many families that have more kids than these folks and live off of a fraction of what they do. This is a perfect example of how money does not create wealth.