10/7 So I read in The Economist last week that Americans now save
1% of their income. That astonished me. Time for a motd poll:
I save 30% or more of my income: .
I save 1% or more of my income: .......
I save less than 1% of my income:
I save NaN of my income: .
\_ I think these things are bogus. They usually say "disposable
income" but what exactly is that? 401k counts?
\_ Any income that goes above the standard costs of living,
basically any money left over after you pay rent/mortgage,
food, utilities, transportation, debts and insurance.
A lot of people are living month-to-month because they
have zero disposable income (they buy too much house,
they have kids, they buy too much car, they have high cc debt,
etc.) The only real way to get out of this trap is to
own some assets which generate you money, which is why
it's technically a lot less riskier to start your own
venture than it is to just keep living from paycheck to
paycheck. (Optimally you do both). In contrast, my
disposable income approaches 50-60% of my total income, but
that's because I have both assets (in terms of rentable,
paid-off real-estate and running small business ventures
on the side and playing the market) and a steady income
from a "day-to-day" job. Plus, I have no capital intensive
dependents (read kids).
\_ That's very nice for you, but doesn't really do much for all
the Americans who can't save. I find your explanation for
why people are living paycheck to paycheck to be somewhat
glib. What about skyrocketing health care costs? What about
skyrocketing housing costs (a tiny single family home is only
"too much house" because it is overpriced)? What about
stagnation in middle class income?
\_ I make about 23k/year and save about 10% of my income.
not driving is probably the single biggest factor.
\_ What about them? As I said before, the only way to
get out of the trap is to own money-generating assets.
Sure, a 10-25% increase in healthcare/fuel costs is going
to cost the average American about 3-4K more per annum,
but 3-4K is like peanuts compared to the money you
can generate by doing things beyond a monthly paycheck.
Is it easy to do? No. Does it take a toll on your social
life? Absolutely. Working weekends/nights on your own
stuff is only for those who want to do it, but the
rewards are there if you stick to it.
Plus, buying a house in an overpriced market is just
dumb. Even if interest rates are low the savings in
monthly payments are offset by the longer term of the
loan and the higher property tax you pay. Think about it,
a 15 year loan is finished in 15 years, but property taxes
are there ALWAYS until you sell the property. A lot
of people get suckered into thinking that buying a home
is good because it's an asset. It isn't. Buying a home
that is overpriced with long-term mortgaging is just plain
stupid because it's a big LIABILITY. So, people should
take the emotion out of buying real-estate and pay for
what the property is worth, NOT what the monthly
mortgage payments are. After all, if you are making a
decent living the extra couple of points on the mortgage
are tax deductible anyway.
\_ My mortgage + property tax is not that bad once I
deduct the interest and the tax. If the house falls
in value the property tax goes *DOWN*. Be careful
that you don't fall off your high horse, because
many people in this country cannot afford a house
at any price and $3K/year is a lot of money to
someone who clears $450/week (which is what you get
if you make $30K). It's easy for us six figure
college boys to scoff, huh?
\_ I've met a number (not many, but a fair number)
of people who have never even set foot on a
University campus who slowly but surely became
millionaires. They did it by owning small businesses.
They did it by being frugal. They did it because
they knew how to save. A large paycheck doesn't
equate to knowing how to save that money
because Uncle Sam whacks off 33-40% off of
that paycheck thanks to our progressive tax
system. The key is to think about doing
things OUTSIDE your daily routine that will
generate money.
\_ This is not everyone. The number one thing
you need to have in order to save is money.
Discipline and motivation are second. My dad
saves a lot of money (as a %) but he could
save that % for the rest of his life and
it wouldn't do much good. Your audience is
wasteful professionals, not the working man.
Yes, you can turn from burger flipper into
burger chain owner like the Wendy's guy, but
not everyone is capable and quite frankly
there's a lot of luck to it.
\_ I dunno about that. My wife worked as a
waitress for seven years and managed to
put away $50k, which she had turned into
$100k by investing. Now she has a Master's
from UCB and is making high five figures,
but even as a waitress, plus working odd
jobs, ske was able to pull in about $40k/yr
and save 1/4 of that. And this is in the
Bay Area. I, on the other hand, was $30k
in credit card debt before a dotcom cashout
saved me. Needless to say, she manages
the finances.
\_ She saved $10K per year on a $40K
salary? That's definitely unusual, but
even so what can she do with $50K?
She's going to start her own business
with that?! In 20 years she would have
$200K and will have lived like a
college student for her entire life.
That is not exactly appealing to most.
Most people take $50K and buy a house
with it, which is probably not a bad idea.
\_ That is what we did with it: we
bought a duplex, which we live in
and provides a good revenue stream.
That is how you do it: save $50k,
turn it into $100k and leverage that
into bigger gains. It is not easy
and it takes some luck, but unless
someone hands it to you, that is
all you can do. At this point I
would like her to start her own
business, but she likes where she
is at too much to switch.
\_ I see. I spend like $1900 per month. If I make $5000
(should it be before or after tax?), does that mean I have
a savings rate of 62% ? I have trouble believing
the 1% figure. Many people I know don't save enough, but
1% sounds too low. Does, say, home improvements that
increase the value of your house count as savings?
\_If you make $5000 per month your take home pay is about
$3700-$3900 after taxes, SSI, etc. depending on how you
do your taxes. If you spend $1900 per month you'll be
left with around $2000 of disposable income. Obviously
you're not going to save $2000 (you probably spend some
on stuff like movies, games, gifts, computer junk, etc).
so you probably save around $1200-$1500, which is a good
number compared to most Americans. The U.S. could encourage
even more savings if they would give people who saved their
money tax breaks, i.e. they would knock off a buck off
your taxes for every 10-20 bucks you save.
If you want to save on taxes you should start a business
and expense a bunch of stuff, like your vehicle, equipment,
etc. That way you expense some of your consumables and
you can deduct that from your taxes. In addition, you
should really use some of the money you save for business
ventures because if you lose the money it's tax deductible.
So hey, why not risk it? And contrary to popular belief,
you have about a 50% chance (if you do your homework)
of having a business succeed. (the 1-10 number is
not an accurate statistic).
\_ I thought that the 1 in 10 number was just for VC funded
high-tech startups.
\_ Why save when the government is there to take of you
cradle to grave.
\_ The gov't wasn't there to help you write a coherent sentence,
apparently.
\_ The couple who live below me are probably 38-44ish,
have no kids and are renters. The complain about
chipping in an extra $7/mo for garbage but they own
1 brand new 5series BMW, a corvette, and another car,
a +$25k harley and another motorcycle. One is some kind
of office manager type and the other is a personal
trainer. I fully believe the have a ~1% savings rate
or one of them is a successful drug dealer. |
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