October 09, 2020, 06:17 PM
Austin228quote:
Originally posted by Aeteocles:
quote:
Originally posted by mjlennon:
Personally, anybody that can't take better control of their finances than that and only has $34 left over at the end of the year is a loser.
Can we look at that chart a bit?
It looks like they're coming out with a little more than $34 a year. They're budgeting in their savings by fully funding their 401k and contributing to their kids 529 plan. So, we're looking at something like $57k in savings right off the top--or about a 22% savings rate after taxes.
Also a large chunk of their money is going towards housing--which can't be helped--but, it's not entirely wasted. There is still some equity built in that home, and after paying down the mortgage they'll still be left a fairly large nest egg that might also appreciate over time.
I think the point that they're trying to make with the chart though is that you don't see a bunch of extravagance on $400k in SF. Yes, a $2M house sounds like a lot, but that's just what houses cost there. You don't see a pair of Range Rovers on there, or a nanny.
$100k in income taxes and another $24k in property tax is a bummer though.
Of course a family in the top 1.8% of household incomes spends a lot, they make a lot.
The given chart makes no sense from a financial analysis perspective.
It is also not probable that this family even exist's from a probability and statistic's standpoint. (my field of study and work actually)
Now if it was redone with actual government standards that hold up in court and are revised year to year then I would agree but this chart is fully made up as if someone was just plucking numbers and making a meme. (DERP!)
https://www.irs.gov/businesses...ousing-and-utilitieshttps://www.irs.gov/businesses...hing-and-other-itemshttps://www.statista.com/stati...ld-income-in-the-us/Neutral observations: Why does the family in the top 2% of household income(actually top 1.8%) "allowed" on this chart for no given reason multiple times higher figures for items like food, child care, etc. than local and national government-set standards.
The real truth is in an actual financial analysis no one is going to give you a luxurious standard of living and then also say "You're right you can't afford anything else, wow!!"
It isn't essential to spend multiple times as much on daycare/food as is allowed and no actual financial analyst would agree that this is a correct analysis that shows the true amount of excess funds available to this family to pay some debt or save money etc.
BTW The allowable amount for all housing and utilities/maintenance/telephone/cellphone in San Francisco County for 2020 is $4,474, not $6,746 just for the mortgage so any amount over 4,474 has no legal ground in a financial analysis where the top 2% income family would be disputing an ability to pay some other debt or saying they can't "save money"
Now if the chart is just a "meme" that we can just make up whatever numbers we like I guess, but then it truly means nothing.
Paying for your Children's 529 account is also not essential for the parents production of income so that too would be zero out on a real financial analysis.
In addition the monthly NATIONAL Standard for Food/Housekeeping supplies/apparel and services/personal care products & services and all miscellaneous items is $1740 for a family of four, multiple items such as just food is higher than that, if someone didn't have diabetes or something like Celiac or Crohns,etc that required a special diet it wouldn't be allowed
You'd be given 1 year at most to lose the expenses above standards or you'd be having a not good time.
"Charity" would not be included in any financial analysis unless it's a requirement of a job(like tithing for certain church employees,etc)
Also there is no "Vacation" allowance either, yea that's part of miscellaneous in the national standard of $1740/mth for four people household.
Again if its not necessary for the production of income/health/safety/welfare no judge/fed/banker would ever allow it as a allowable expense on a financial analysis.
Miscellaneous items includes all entertainment too - once you use that in place of all the different items that exceed that you see a much clearer picture of this "family".
The daycare and preschool costing $5,300 would also be scrutinized and likely they'd have to change to somewhere more in line with the average price of daycare in San Francisco County
"Child Care Costs
Estimated cost of full-time care in San Francisco*
Child care center
0-2 year old 2-5 year old
Monthly $2,459 $1,880
Annual $29,508 $22,560"
So again that limits that expense to around $4200 a month if one kid is in day care and one in preschool.
Also if there are public Pre-schools the family would not be allowed the expense as private school is not necessary for the parents production of income.
The chart is disingenuous at worst and just a meme at best :
Families in the top 2% of income tend to make a good deal of income from "Long-Term Capital Gains" -which are not taxed at 33% at all (the rates for that are 0 percent, 15 percent, and 20 percent) (a 400K family falls into the 15% tax bracket for capital gains)
So in all "Long-Term Capital Gains" i.e. stock options they may be getting/investments they have. -items that have been held for longer than a year (again the $400K family is 90% likely to own stock which can have long term capital gains while a poorer family is likely to have none.
Hitting you with some facts from
www.forbes.com (a trusted source)
"The Federal Reserve study found that only about one-third of families in the lower half of the income scale had stock holdings. In the next 40% of the income scale, about 70% of households held stocks, while households in the top 10% of the income scale had stock ownership rates above 90%.Aug 31, 2020"
I'd explain why I know so much about this but I'll summarize it as its been my job for the last 15 years to do financial analysis on businesses and individuals.
They could easily pay standard allowable prices for food, child care, etc.
In fact when an government or private entity comes after someone who owes money and gets a judgement or civil case with the Feds/etc this kind of analysis would be immediately discounted as a luxurious standard of living.
The US National Standard "allowances" for food/clothing/misc items are the exact same regardless of income, i.e. in that sort of legal financial analysis everyone is treated the same.
There are also local standards for every county in the US for items like housing/utilities/car ownership/car operating cost, etc.
You get what has been determined to be required, not a luxurious standard of living.
PS My brother whose a IT guy lived in San Francisco in the 90's and it was already ridiculously overpriced but guess what...you can always sell your home/stop renting and move! (he did)
PS if you owe money and got a judgement you'd have to stop the 401K deduction too.
So the real version of this with actual legal standards!
Monthly Income
33,333 income per month (Using a more probable source of income for a top 1.8% household, 33% as capital gains)
Effective tax rate - 15% for capital gains if married income is between $75,901 and $470,700.
Effective tax rate for $133,333.33 of capital gains income = 15% or $20k even
Effective Tax Rate on wages of 266,666.67 with 60K of itemized deductions(which is more likely) = closer to 24% or lower in total
also the limit on 401K contributions in 2019 was 19,000 per person, plus $6k if person is 50 or older, if the parents were older than 50 and in the top 1.8% of income it would be even more probable to have a higher amount of long term capital gains as income and thus a much lower effective tax rate.
Also with high income often comes more than just the standard deduction of $24K this year but I'll pretend their mortgage interest on the allowable 3% interest of the first million dollars and property taxes don't already outweigh $24k
(the total interest on the million over 30 years is $517,775, and if you know anything about mortgages at the beginning you're usually paying almost all interest)
(Mortgage Interest payments in the first year assuming this couple never made anything before this would exceed $40K), as the property taxes are already over $24k, so the magic chart fails us again as the couples itemized deduction is easily over $60K just from mortgage interest and property taxes alone without having to use any mental magic)
Actually if you read what I now call the "magic chart" you'll easily see mortgage interest at 3% on a 1.6 million dollar home over 12 months and the "DUH" $24,804 in property taxes goes way over the 24K standard deduction. (you can deduct the interest on the first 1 million of your mortgage for married, $500K for single)
(1 million over 30 years at 3% is $517,000 or so in interest, with most being front-loaded, so if this family was just starting their dual doctor/lawyer business and buying that home in the first years the interest could well be in the 40K+ range)
Because of that the family would have a much higher itemized deduction based on just the information provided, and have a high probability to deduct other items and have even more of their income not taxed.
Thus the family even in this scenario would have a lower effective tax rate than what is shown (actually even without the effective rate is lower)
Here's a still incorrect because I still used a standard deduction when itemized would likely be $40k-$60K but more correct than what was on the "magic-meme chart of spending"
(it's name is gaining a life of it's own-Sorry the more I see it the more I see wrong with it)
Your Income Taxes Breakdown
Tax Type Marginal Tax Rate Effective Tax Rate 2019 Taxes*
Federal 32.00% 17.59% $70,345
FICA 2.35% 3.85% $15,390
State 9.30% 6.77% $27,066
Local 0.00% 0.00% $0
Total Income Taxes 28.20% $112,800
Income After Taxes $287,200
Retirement Contributions $39,000
Take-Home Pay $248,200
So above is a breakdown if they really made $400K in wages in San Francisco-
Also in the above I'm accounting for the fact this couple must have severe learning disabilities.
These learning disabilities prevent them from counting over the over 60K in itemized deductions they have by merely adding their mortgage interest statement to the property taxes and state income taxes.
Which is again not probable at all, especially for a couple in the top 1.8% of household income.
Here's a more realistic but still not probable as the couple still has no capital gains but is using a itemized deduction of $60k(24K property taxes + 16K mortgage interest + 22K state taxes are also itemized deductions)
Location San Francisco
Filing Status MFJ
Advanced
401(k) Contribution 38K (2019 being used, 19K was max per person)
Itemized Deductions 60K+ (24K from property taxes, state taxes of $22,423 is also itemized deductible as state income taxes are, 16K mortgage interest is actually not even possible for a 1 million dollar home.
In fact its less than spreading the $517,500 over 30 years, but again this is just aiming at a more "probable" income and tax rate. (if mortgage interest was spread evenly over the years(its not) the average would be $17,233.
But if we are assuming this family doesn't own any long term investments and just got great new jobs the mortgage interest would be huge in the first year (easily 40K+ alone) and they might have PMI (mortgage insurance) too.
Number of State Personal Exemptions
Your 2019 Federal Income Tax Plus FICA : $73,819
Your Income Taxes Breakdown
Tax Type Marginal Tax Rate Effective Tax Rate 2019 Taxes*
Federal 24.00% 14.61% $58,429
FICA 2.35% 3.85% $15,390
State 9.30% 5.61% $22,423
Local 0.00% 0.00% $0
Total Income Taxes 24.06% $96,241
Income After Taxes $303,759
Retirement Contributions $38,000
Take-Home Pay $265,759
So the above shows with 60K in itemized deductions but 400K in wages.
PS No capital gains being on this one, which would reduce the effective tax rate even further by making 1/3 of the income(or even more) only taxed at 15%
The magic chart of spending would only work if magic was real.
There are no valid numbers/tax rates being used that would hold up under any legal challenge or actual financial analysis by an financial analyst looking at this families ability to pay debts/expenses....
I could show what the expenses should be limited too but I've done enough to show how wrong this thing is.
