[quote=deadzone]FLU, your math is way off if you think W2 take home pay is only $5500/month on 175K salary. I think you are off by a factor of two. Take home pay every 2-week pay period would be about that.
And anyone with that take home pay would be able to lead a VERY nice lifestyle.[/quote]
Ok, enough, ok….
Here’s is a hypothetical paystub from a few years ago. It’s hypothetical because it’s not necessarily mine. It could be a cousin’s, spouse, relative, etc. In any case, it’s outdated and a few years old. The paystub is a march paystub. And it’s outdated, so wouldn’t even reflect current market conditions, whatever that may be (less or more).
The point of this is illustrate, that as I mentioned, taking all the deductions (some of which is in your benefit), the net pay per period is *not* a license to live a life of luxury, at least not for the first 6-8 months.
For the time being, ignore the shitty cash bonus and restricted stock.(Obviously, this didn’t come from Intuit, and that company had a bad year that year, in which everyone’s bonus and stock grants were in the toilet). Although the base a few years ago is $6k short of your magically $175k (take regular rate of 80 hours * 26 pay periods per year), again this is a few years back, and you can extropolate what it would be in present day with annual increases and additional years of experience, even if you want to go as low as a 2% per annual increase which would be insulting at best.
Anyway,
*$1900/pay period goes to fed/state/medicare taxes and sdi.
* ALSO, keep in mind this is what happens when you claim “5” as your fed/state exemptions, which you can only do if you dependents and itemized deductions like am mortgage. Otherwise, you’re most likely claiming 1 or 2, which would most likely increase your tax bill to around $2100
*$60 goes to medical insurance, which is low (company has a decent health plan for PPO family coverage.) This is usually a lot more elsewhere.
The rest of the deductions again are for your benefits, but most of which you can’t do anything with for a long long time.
$180 for flex spending/depedent care (pre tax)
$715 is pre-tax 401k..Can’t touch it to 65….
$455 is roth 401k that is AFTER tax. Can’t touch it to 65….
$975 is towards ESPP which you can’t touch for 6 months, and even if you sell before 2 years, that’s taxed at ordinary income, not capital gains tax rate.
That leaves about $2200/period, or $4400/month for the first 6 months (yes, june july has 3 pay periods).
Now let’s just say someone does make $175k. And let’s say that $6k difference from this pay stub is completely tax free. That would put an additional $500/month on the person’s pocket (and clearly not all of that would be tax free). So you’re looking at $5000/month, and I’m adding an additional $500/month for padding…
So it would come out to be about $5500/month for the first half of the year, until you maxed out on your 401k’s, you hit the SDI tax limit, and medicare tax limit (which BTW went up starting in 2014), and you pick up the two extra pay periods in june and july.
Now with that, subtract $3000/month for mortgage+proptax+insurance or for some of you folks that insist on renting in Carmel V $4000/month. If you do the former, at least you get a tax writeoff, the latter you’re pretty much screwed in that none of it can be written off. No renter credit for your income level. That will leave you roughly $2000-2500/month, half of which you raise your family with, and the other half that goes toward the Porsche 911s car payment….HA HA, NOT, are you insane?…
So anyway, I hardly consider this living a life of luxury and a license to spend spend spend. This isn’t wealthy. This is middle class. This is what a W2 income looks like, and I’d be curious how it would stack up to say an attorney or doctor with equivalent number of years of experience. Not only would I suspect the gross income to be different, but the net income to be different, as many such doctors/attorneys/dentists aren’t on W2’s.
This is why I don’t understand why many of you are still so fixated on trying to figure out how to increase your W2 in the absence of any interest in the in-demand areas that would give you that marginal increase after taxes. Unless you are passionate about what you will be doing, you’ll be average at best and there will be someone that will be much more passionate than you about it that will most likely end up doing a much better job than you. And it changes. There are good years, there are bad years, and it averages out over time. Stick with what you are passionate about, and if it happens to not be in demand, you either find something you are passionate about that is in demand, or you stick with what you have, and if money is still a concern you spend your time saving your existing W2 AND putting it to use in more tax efficient ways to earn additional income, some of which you’ll fail trying, and some of which you will do ok. This is what Informercial “Rich Dad Poor Dad” has been trying to tell people: W2 income is the worst way to accumulate wealth relative to all the other ways that are much more tax efficient (although I think that guy is a fraud that just tries to sell his infomercials without telling people “how”, the basic premise of his message is pretty spot on).
This is also why I don’t understand why so many of you in the past have said that you would like to see an increase in capital gains taxes and dividend income, and that it should be taxed the same as sweat income. You basically want the government reduce/take away incentives that you can take advantage to help you secure your financial future without requiring you to put much labor in when you are old, sick, tired, whatever. Look at your W2 again. You don’t see a “pension” that is guaranteed for life like some get in the past do you? You don’t see a “guarantee” return as you do for some of the public pension plans do you? So basically you expect to continue to work indefinitely?
Anyway, I wish I learned that a decade ago. I wouldn’t nearly have spent as much time about my W2 as I would have on empire building passive income.
And yes, I brown bag my lunch every day. Because I have to watch how I spend.
