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not saying this family does not have budgeting problems BUT I think a lot of people fail to consider just how much the US taxes income. Taxes start getting absolutely killer after a certain point.
For example, a solo person in California, making $220K/yr income has a marginal rate of:
Federal : 32%
California : 9.3%
Social Security : 6.2%
Medicare : 1.45%
That's 48.95%, at the marginal rate they are earning only 50 cents on the dollar. And those are the hardest dollars to earn in terms of effort and skill.
Someone making $220K/yr in California (or thanks to inflation most US states now since rents in even cheaper metros has doubled or tripled) isn't rich by any means but is taxed like they are rolling in money.
Well instead of guessing it took 2-3 minutes to get semi accurate figures with some napkin math
220k gross, assuming single and standard deduction
47,083 fed
9114 ss
3190 Medicare
17,015 california state
Is 76,402 or 34.7% most likely being a worst case scenario since SALT alone would have a 10k deduction on federal
Your math error is over 31k annually and most likely even higher
If you are living paycheck to paycheck on 250K/year you are HORRIBLE with money. The prices at the pump and grocery store don't help matters but you've got way bigger issues than that if you're barely getting by on 250K.
Last edited by springfieldva; 06-04-2022 at 10:53 AM..
Location: By the sea, by the sea, by the beautiful sea
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Quote:
Originally Posted by City Guy997S
Lifelong friend is a Dr married to a lawyer..........they are flat broke. Guy had 4-5 big vacations last year, house remodel, new cars and yet not a dollar (NOT ONE) saved for retirement or kids college. We went to college together, he was the best man in my wedding so I saw when he was struggling after becoming a Dr but he has never gotten out of the rut. One bad decision snowballs into the next bad decision. He came to my house last summer and his wife was very upfront that they are literally paycheck to paycheck.
It's clear that many of us have better than average financial knowledge...it's a low bar. But I'm often wondering how much of our GDP is helped or hurt by the current spending/earning/financial knowledge of the average resident. I mean, financial engineering through loans, lease, credit, buy-now-pay-later, etc pulls forward a lot of future sales that lay-away or piggy-bank methods of finance use to bring. Industries and business exist to service, collect, and write-down consumer debt. At the same time, producer of consumer goods have goosed their margins by selling more expensive goods since the consumer is able to finance it. If people actually had to pay for all that they consume without financing it, I'm sure the economy would have a heart-attack. Seems like there needs to be a healthy balance but borrowing money seems to be like a drug.
And then there's the whole "Keeping up with the Jones" and YOLO/FOMO/lifestyle-porn mentality.
Lifelong friend is a Dr married to a lawyer..........they are flat broke. Guy had 4-5 big vacations last year, house remodel, new cars and yet not a dollar (NOT ONE) saved for retirement or kids college. We went to college together, he was the best man in my wedding so I saw when he was struggling after becoming a Dr but he has never gotten out of the rut. One bad decision snowballs into the next bad decision. He came to my house last summer and his wife was very upfront that they are literally paycheck to paycheck.
I agree with the other poster that this couple has made the deliberate choice to be and stay broke by blowing through their money faster than they make it.
They are living large now buying expensive cars, going on luxurious trips, not putting a dime away for their retirement or helping their kids with school. They clearly have no intention to save a dime for themselves. It's all about instant gratification.
Are they planning to work until they die? Are they going to be content spending their golden years sharing a double wide with roommates while they try to get by on social security? What exactly is their plan?
Retirement seems so far off when you're 30 that it's easy to just not think about it. College seems far away when the kids are little but time has a way of flying by - it seems they go from being babies to HS graduates in a blink of an eye.
My guess is they are going to regret their decisions as they get older and see their children struggling with student loan debt while, they, themselves, are struggling to get by on very little.
Smart people sometimes do stupid things to themselves. They can't blame the economy for their buy now, pay later lifestyle. It's lack of planning on their part, plain and simple.
I'm not sure what you mean. As a millenial I have boomer parents. Many X'ers also have boomer parents since the boomer generation was slightly longer at 19 years versus the perceived 15/16 years for X/Millenial. I think most of the bashing is for their parents generation, not the grandparents.
With that being said, I don't understand bashing ANY generation especially since we all know people are different regardless of when they were born. To me, it's the equivalent of believing in Astronomy where whatever stars were above when I was born would determine my personality somehow.
I just knew that someone would parse the Millenial - Boomer thing. My bad, I guess. I was really referring to the resentment Gen Z has for Boomers, which is utterly preposterous. Your point is well taken re: stereotyping; sadly, we live in an age of endless memes, which is antithetical to what my “greatest generation” parents taught me.
I just knew that someone would parse the Millenial - Boomer thing. My bad, I guess. I was really referring to the resentment Gen Z has for Boomers, which is utterly preposterous. Your point is well taken re: stereotyping; sadly, we live in an age of endless memes, which is antithetical to what my “greatest generation” parents taught me.
Gen z’s resentment for boomers? Is that really the generational conflict that dominates today? I’d say it’s actually any old person labeling a younger than them person as “millennial”. Every old generation and the ones older than them look down on younger ones no matter the circumstances but millennials catch it for anyone younger than you even though millennials are now mid 20s into their 40s.
I think this is the biggest part. A young couple making ~$250k with 2 kids in daycare in LA it seems reasonable that after putting ~$15-$20k/yr in their 401ks they could feel like they are living close to paycheck to paycheck.
- I could easily see a PITI on a recent home purchase, i.e. last 3-4 years, in a HCOL being ~$45-$50k/yr.
- Take out ~$70k in taxes (assuming Married Filing Jointly)
- Take out ~$20k in 401k and HSAs
- Take out ~$30-$40k in daycare
You are already at $170k of the $250k gone.
Add in a few car payments, student loan debt, groceries, clothing and that could conservatively be another ~$30k.
So you have ~$50k left for everything else.
Some of your expenses are different than I would use;
- Loan qualifying allows PITI to be 28% of income so more like $70K, other debt can be as much as 10% so $25K = total $95K debt.
- 401K for 2 and HSA/medical for a family can be more like $45K
- Taxes would be $12K FICA, $15K CA, $33K Fed = $60K
- Daycare is $10-15K, so 2 kids maybe $25K
So with taxes of $60K and daycare $25K, left with $250K-95K-45K-60K-25K left with $25K for the rest. This is why $250K may not be much in places like CA, left with 10% or $25K for food, utilities etc - not living that high and can be feeling like money is tight.
Well instead of guessing it took 2-3 minutes to get semi accurate figures with some napkin math
220k gross, assuming single and standard deduction
47,083 fed
9114 ss
3190 Medicare
17,015 california state
Is 76,402 or 34.7% most likely being a worst case scenario since SALT alone would have a 10k deduction on federal
Your math error is over 31k annually and most likely even higher
Your are the one that made an error, you are comparing an effective tax rate with marginal tax rate. An effective rate of 34.7% is how much of total is taxes from the first dollar, a marginal rate of 48.95% is the taxes on the next $1 earned (above $220K). So if used same data but made $230K instead of $220K - would make an extra $10,000, $4895 of that is taxes so only $5105 is spendable. The total taxes would then be 76,402+4895 = $81,297 and the effective rate would be $81297/230K = 35.3%. Both can be correct but are different starting points.
Some of your expenses are different than I would use;
- Loan qualifying allows PITI to be 28% of income so more like $70K, other debt can be as much as 10% so $25K = total $95K debt.
- 401K for 2 and HSA/medical for a family can be more like $45K
- Taxes would be $12K FICA, $15K CA, $33K Fed = $60K
- Daycare is $10-15K, so 2 kids maybe $25K
So with taxes of $60K and daycare $25K, left with $250K-95K-45K-60K-25K left with $25K for the rest. This is why $250K may not be much in places like CA, left with 10% or $25K for food, utilities etc - not living that high and can be feeling like money is tight.
When you take on an almost 6K mortgage you can't really be surprised that you have less in the way of discretionary income.
I can't imagine taking on a huge mortgage payment like that.
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