Is there a non video answer for those of us who prefer text?
Anyway. I remember talking about lifestyle inflation with a coworker a couple years ago. I said I could probably squeak by on $50k/year*. We were both guys living alone at the time.
He was like “how?? Like, you need at least $1000/month for food alone.”
I said, what? How are you spending that much? I budgeted for $300 but I’d likely hit half that with some effort.
He was like “Well you go out to dinner, you buy drinks for your friends, it adds up”
“You don’t go out for dinner that much when you’re on a budget”, I said. “Or buy rounds of drinks.”
“Oh,” he said. “I guess not, huh.”
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I did have to make a rule in relationships to not discuss finances because it would cause me pain. Like one person in particular was a great person, but they never made a budget and were always in debt. And they’d be like “I’m going to go to California to visit friends for a week”. Killing me. You don’t have the money for that. Every dollar you spend on this enterprise is more like 2 because it’s carried on credit card debt. But I learned to keep it to myself because no one wants unsolicited advice, and it is cruel for our system to deny people fundamentals like seeing friends and family while others have mega yachts.
* This is heavily predicated on me not having any outstanding debt, which is unusual I think. I never carried credit card debt, but my student loans were only a few hundred a month and I’m old enough they’re paid off now. If I had $500/mo in debt I think $60k could squeeze by. It’s possible I messed up my math, though.
I have been in numerous relationships where we did not discuss finances in any detail. We’d talk about like who’d pay for dinner, but not larger stuff like “are you saving enough for retirement” or less at-hand stuff “is that Netflix subscription really worth it?”
Not every relationship is monogamous marriage with merged finances. Sometimes you date for a couple years. Sometimes you’re polyamorous. There are many options for relationships.
It’s possible to be in a monogamous marriage without talking about it too. I just outlined how that works for me and my wife as a response to the same comment you replied to.
My wife and I have been together for almost 20 years and we almost never talk about finances. She has her own bank account, and her own money, and I have my own bank account and my own money. We have a joint account that we both have auto transfers into on paydays to cover our joint household bills. I make more than her, so I contribute more to the bills, so that we have about the same amount of money after everything is paid. Then that’s it! She doesn’t need to ask me or talk to me before buying something she wants, and visa-versa. I even bought a car once and didn’t talk to her about it. She was excited when I brought it home. I highly suggest this accounting method for couples. I’ve been in a relationship before where we had all our money as a single household pool, and it fucking sucked! We were always arguing about things we each wanted. Anyways, the point is that it’s not only not impossible to be in a committed relationship without talking about money, it’s probably actually the preferred method (at least it is for us).
I agree with this, it seems like the best solution to me.
I think where this gets tricky is with kids and retirement.
How would you address that? If you’ve got more saved for retirement does that mean you would retire early while she is still working? How does the household budget work when she isn’t working because she just had a kid? I guess you’d just contribute the full budget?
She always worked, so I never had to answer the kid question. That does get tricky. As far as retirement goes, that’s also something we haven’t had to think about yet. We both max out our retirement contributions, and save some extra money on the side. I’m older, so I probably will retire a few years earlier, assuming either of us are ever even able to retire. Social Security retirement age will probably be raised to 100 by the time we’re retirement age. It’s a conversation we’ve had a couple of times, but never very seriously. I know we’re both treating it seriously though, so there’s that.
When I moved from Canada to the Netherlands, my salary stayed roughly the same, but the amount I saved every month exploded. The Netherlands has much higher income taxes, but it should be noted that I also enjoyed some pretty sweet tax incentives as a skilled expat.
The relevant differences between the two environments were:
In Canada, paycheques come every two weeks. In the Netherlands it’s every month, so you have to lean to pace yourself.
In the Netherlands, your paycheque isn’t 1/12th of your salary after taxes. Instead they actually withhold around 12% your salary and pay it out to you in a lump sum partially in December and again in May. You’re still getting the same amount, but you’re forced to budget on a lower monthly amount, while enjoying bonuses twice a year. I used the bonuses to pay down my Canadian debt.
The Dutch don’t live off of credit cards the way North Americans do. While in Canada you’re taught to “build up your credit rating” by using a credit card, in the Netherlands, many people don’t even have a credit card. Purchases are typically made with debit cards instead. Unlike Canada, these cards don’t apply a fee to your purchase either.
They also don’t really care about credit ratings. Instead, there are laws that restrict you from buying or mortgaging at a monthly cost higher than x% of your monthly income.
Car ownership is drastically reduced there. While in North America people flip out at the idea of 15min cities and refuse to believe it’s possible to live without a car, people do it every day there.
Finally, and this one may be more specific to me, going out for a meal is a bigger deal there and typically more expensive. Dutch culture expects lunch to be a home made ham sandwich or just a piece of bread, chocolate sprinkles and some buttermilk. Meanwhile I was used to blowing $20/day on eating out for lunch and often went out for dinner too. The amazing quality of food you find at their grocery stores meant that we often collectively bought groceries for office lunch every day, and I cooked at home.
In the space of 2-3 years, I paid off my credit cards ($10k) and what was left on my student loan ($12k). Inside of 5 years, I had tens of thousands of Euros in my bank account.
Exactly. Credit scores are a scam and an incentive into having a credit card and overdrafting.
Instead, there are laws that restrict you from buying or mortgaging at a monthly cost higher than x% of your monthly income
It’s called “level of indebtedness” or “financial burden” and it’s typically 40% of net monthly income. So you cannot get a loan that would put your total monthly installments (counting all of your credits) above 40% of your income.
And I would add that if you are behind with your installments, creditors can only hunt you down for 50% of your income (subtracting any other credits you may have / owe), so you don’t typically go bankrupt because of loans. Of course, for a mortgage, you do lose the house, but I’m talking about general loans so-called “for personal use”.
Then that would have been a good clarification to include in the statement. But when someone said their raises are eaten by taxes, one immediately assumes income tax.
To be fair, in places where income taxes are bracketed rather than in smooth percentages, it can happen. It’s much more common with bonuses and heavy OT to jump you up for a single paycheque, though.
I’m unclear on how a tax rate of, say, 30% can eat 100% of some non-zero value.
Like, if you went from Gross: 1000, net 700 to gross 1100, you’re going to go to 770.
If income above 1000 is taxed at a higher rate of like 50%, you’d still keep half of the new 100 on top of whatever you were paying before for the bottom 1000.
Wait I think I figured out how people think it works. If you don’t understand tax brackets and think that your entire income is taxed at the new rate, there are some cases that could a net loss. That’s not how taxes work anywhere in the US to my knowledge.
Let’s say you have a gross income of 10,000 because that’s a nice round number. And you pay 10% of that in cases, because that’s also a nice round number. Your net take home is $9000.
Let’s say you then get a huge pay raise to 20,000. And in this incorrect model of taxation, that puts you in a new tax bracket of 70%. You would then take home 20,000 * .3 = $6000, which is less than your net was with a base of 10,000.
But, again, that’s not how tax brackets work so far as I’m aware anywhere in the US.
What would actually happen is the first 10,000 would be taxed at its rate. 10% in this case. You’d pay that $1000. If the next bracket went from 10,001 to 20000 and was at 70%, you’d pay 7000 of that chunk. So your net take home would be 9000 + 3000 = $12,000, which is definitely more than the $9000 you took home with a gross of 10k. Except the real numbers are different, filing status matters, and there’s different incomes and investments that complicate things. Here are some numbers: www.nerdwallet.com/…/federal-income-tax-brackets
Progressive taxation should be taught everywhere if it’s not. I think I learned it in like 10th grade, but i’m old and my memory is foggy.
There is one instance in the US where you can lose money from a raise. You can deduct 100% of student loan interest as an “above the line” deduction (not an itemized deduction) unless you make more than $72,000 a year, and then you can deduct none of it.
Some people pay thousands of dollars in student loan interest a year. A $1 per year raise could put them over the line and cost them whatever the marginal tax rate is on those thousands of dollars.
It’s a stupid cliff of a line. It should be a curve.
No it can't, with tax brackets you are not taxed at the top rate for your whole income. Say you make 90k and the tax brackets go 0-15k:0%, 15k-30k:10%, 30k-40k:15%, 40k-50k:20%, 50k-100k:25% 100k+:30%. On the first 15k you make you pay $0 in tax on the next 15k you pay $1.5k, on the next 10k you pay $1.5k, on the next 10k you pay $2k, and on the last 40k you pay $10k. Total tax of $15k(~17% of 90k). Now say you get a raise and are making $110k. On the first 50k you are still only paying $5k, on the next 50k you are now paying $12.5k, and on the last 10k you are paying $3k. Total tax bill $20.5k(~19% of 110k). If you were taxed at the top rate for your total income then the first tax liability would have been $22.5k(25% of 90k) and the second would have been $33k(30% of 110k). That's part of the difference between actual tax rate and effective tax rate, the other part being things like tax incentives, write-offs, and deductions.
“To be fair,” no it can’t, at least not in the US. The top tax bracket for income I think is around 37%. And the next lowest is in the high 20s, but I don’t know what the $ amount is, but I think you gotta clear a half mil + a year before you get to that 37%. So make a mil a year? 37%. 2 mil? 37%. No matter what you’re making you’re not getting to 100%. So I don’t know where you live, but here in the US there’s no way to hit 100% on personal income tax, the tax that’s being discussed.
Never heard of 100% taxing here, what I have seen is raises and promotions ending up in a slightly smaller paycheque. Whether that’s due to other factors such as a higher misaligned bracket of state medical insurance or benefits, union fees, I’m not entirely sure, it was more of a warning to watch your first couple of paycheques after a raise.
I would really need to see the math on this. All of the numbers. Plenty of people bitch and moan about taxes, but there’s no way income tax should result in a continually smaller paycheck because the recipient got a raise, nor should a raise be consumed entirely by taxes. Anyone who tells a story about losing all their raise to tax isn’t telling the whole story most likely, like filing for too many withholding exemptions on the W4, paying less tax, then getting slammed with a tax bill “consuming all their raise” or something.
Now, I have heard of people running into issues with the AMT, but that’s for people already making a pretty good amount of money, and that limits (crudely explained) says even though you made a bunch of money more and have a ton of write offs/deductions, the AMT floor won’t let the filer get all the deductions so they pay more tax. That also might come up if one sells a house or something and brings in a bunch of money. But that’s not a situation most people face, and they shouldn’t see it regularly. It was intended to prevent wealthy people from skipping out on taxes.
What this talks about is part of the problem. It is very easy for to treat yourself a little every time you get a raise and for that to become the new normal. I certainly did that when going from school to my first job and as my salary rose in that position. I had to really sit down and put together a budget before I could start saving.
Bigger parts of the problem are salaries not keeping pace with inflation and insane housing costs.
Yet another cause is lack of financial literacy. We aren’t taught how to budget and save. Some may be taught by their parents but many don’t get that. Schools certainly won’t teach financial literacy. That would hurt consumer spending and that wouldn’t be good for short term corporate profits and continued economic growth so it won’t be in our curriculums.
The American education system is entirely hijacked by corporate interests. See the Food Pyramid lie for a good example. There’s no incentive for the corporations who fund public schools to teach financial literacy when frivolous spending and paid-with-credit are so much more profitable.
Yet another cause is lack of financial literacy. We aren’t taught how to budget and save. Some may be taught by their parents but many don’t get that. Schools certainly won’t teach financial literacy. That would hurt consumer spending and that wouldn’t be good for short term corporate profits and continued economic growth so it won’t be in our curriculums.
I realize I have no idea how financially literate or illiterate the average person is.
When I was planning on moving out, I opened a spreadsheet on my computer. Maybe that’s already a leap beyond what the typical person would do?
I made a row for each expense I thought I’d have, rounded up to create some headroom. Plus a row for ‘Other’ with a sizable number to account for stuff I hadn’t thought of. Summed that up.
Made another row with my gross pay. Looked up about how much I’d keep after taxes. About 70%. Calculate that value on another row. Divide that by 12. That’s monthly net take home.
Compared that number to the number from the first section. If I’m not taking home more than my expenses, that’s a problem.
What is everyone else doing? No one taught me that. It just seemed like how I’d add up my expenses and compare to my income. It’s not perfect, but it helped me see what kind of rent was way out of reach.
Yeah, you did the logical and smart thing. I think many people don’t and, for some, it is a daunting task to even get started. The part I was missing was being told “it’s okay if it’s not perfect, just do something close and adjust as needed”. It was always something that I felt needed to be all or nothing, even if that’s not logical.
Just having a two day intro to budgeting in high school or college would probably have done me a world of good. I doubt that I’m the only one.
Previous generations had classes like “Home Economics” to teach sime home skills but it has been decided that isn’t needed. Those useful skills classes have been cut from the curriculum.
