More proof that Mr. and Mrs. Median are strapped for cash!

Dear Nilus,

You hit the nail on the head, so to speak. You are “right on the money”! (no pun intended.) Your estimated numbers in Mr. & Mrs. Median are more than fair (actually, in our situation, your numbers are too conservative!

Thanks for a very accurate reassessment of the cash flow situation in America today.

I am so glad we subscribe to Money and Markets!

Thanks,
Leshia Sattler

Nilus, I am surprised that you did not include anything for “giving”. Many of us tithe regularly (10% or more, right off the top) to our churches, synagogues or favorite chrities. Apply the 80/20 rule to that and you’ll probably come up somewhere around 2.5% for all households. Just another factor that will prevent or curtail savings. We are retired and I can tell you that the nest egg you think you have can go really fast in these financial times. Therefore I am now SEMI retired at age 68.
Thanks for your good articles.
WW

Nilus, you must have seen my financial records because you described them to a tee. However, one major monthly expense you forgot was our families tithe to our church. Which is exactly 10% of our gross income. That is 580.00/mo. Thank GOD one of our cars is paid for! We used to have two cars paid off but an un-insured motorist totaled my wifes car so we had to finance another one. Things happen every day that can throw a family budget in a tail spin. Try to keep the emergency fund at 1k and pray a lot. We’re doing fine!…Nice job on the article….very detailed.

Nilus - I really appreciate your regular emails as you address many topics I believe most people like to hear about. I found your column on Mr. & Mrs. Median and their monthly expenses to be especially relevant. I have always kept a monthly record of everything I spend and it has been an eye opener. I suggest everyone do it. I track dining out and grocery, utilities, insurances, health care etc. and it helps me stay in budget, particularly with these times. Besides monthly costs, I have divided my expenses into quarterly (real estate/estimated federal taxes) and yearly (auto/home insurance), as that helps me monitor my cash flow much better. For those that think this tedious, it actually becomes rather fun when you set goals and attempt to meet them. It also make decisions about buying things very easy. If you are out of budget, than the answer is simply “no”. I wasn’t very frugal growing up and wasted money. But when I bought my first house, I became concerned enough to change my happy-go-lucky ways and plan better for the future. I had some decent earnings from 2004-07 and while I was able to build a better retirement by saving, I pushed really hard to pay off my mortgage (which I did). As those were the real estate boom years, I remember many friends saying I should buy a second (vacation) home or invest more in the stock market. Frankly, I ignored their advice. While I am not risk adverse, I couldn’t overlook the $100,000 I would save in financing charges by paying my note off in 6 years instead of 30. Thank goodness I held firm on that one. Like many people today, my earnings are down from the current economic crisis. Unlike many people today, though, I don’t have to worry about losing my home. I’m not holding myself up as the perfect example of how to manage your home financials, but this system has worked well for me and maybe Mr. & Mrs. Median can benefit from my experiences.

The U.S. econ. reached its highest living standard per capita in 1971,same year Nixon trashed gold stand.& Bretton woods acc. Down hill since then.Welcome to post industrial america.quite utopian.As for me I built my home in 80’s with cash and sweat equity,small mortg. Have lived below our means so 1 pay check would suffice in the event of layoff. Thanks to Safe Money Im even more prepared. Cash is King. Have a nice depression see you in the recovery. Maybe! sincerely Randy

Hi Nilus

Your article presented a realistic view of what’s life is like today. One thing you left out that applied to most Christians was tithe which is a 10% contribution of each paycheck! For those who earned over $55,000 the tithe came out to about $460 a month.
In my case I have to have pretax amount set aside ($3,500 per year) for medical expenses not covered by insurance. (prescriptions, therapies, co-pays, ER and etc.)
Today it’s not uncommon getting calls from some of our family member asking for help financially and imagine with everything projected to rise in prices everywhere and we’re just barely getting by with what we have off my salary!
My wife just signed up yesterday for classes to be trained to do billing coding (medical, insurance) work which could bring us as least $20,000 to $40,000 more after 15 months of training; however; we will be indebted with possibly up to or over $20,000 in tuition fees just for her training in order to earn more incomes!
I invested several shares of GLD, DXO, MOO, and TGLDX valued over $3000 hoping to gain much needed extra income, the hardest part was it will be slow growing and required lots of discipline and patience in spite of the financial needs now.
Sorry to say at present I owned no dividends investment yet, I wasn’t sure whether I would earned much out of a measly small amount of investment seed money ($3000) to begin with. Does this make sense? Thanks.

David. T.

I thought I was going crazy until you wrote this–just yesterday, I was reminiscing about how Hubby and I lived on half his military salary (no debt) just eight years ago.

Today, he makes more money as Civil Service, and we still have no debt, but yet we have nothing left to put away beyond his 401k (we used to contribute to IRAs too). And here the housing market is supposedly “down for the count”, and we STILL can’t find an affordable house, in spite of having a 40% down payment! (Houses around here go for way more than the amenities and conditions inside warrants, making them still in bubble territory for me–I’m not buying them, especially when they may continue falling in value)

For many nights, I lay awake at night wondering what I did wrong. The answer is I did nothing wrong–Obama, the Fed, and the Treasury did it for me, and they’re going to do some more if the cries of coming hyper-inflation ring true.

Now I wonder why I even bother with fiscal control–poverty-level people have houses handed to them via Habitat for Humanity, Section 8, and other programs, they have cars given to them through charities, food given to them from food banks, churches, and our own government programs, and health care picked up by Medicaid and free clinics. In our area, there’s an annual coat drive, a Gifting Tree for Christmas gifts, free church Thanksgiving dinners galore, heavily-subsidized daycare, a back-to-school supply drive, free school lunches and Head Start meals for the kids, and someone here started a weekend kid-feeding project called Project Backpack. With all this, plus the usual welfare and food stamp programs, and the lack of taxes paid, I can see now why poverty is actually ATTRACTIVE. Then Obama comes along and wants to make it even MORE attractive with MY money (and yours too)!

We are living in the Utopia of personal and parental abdication. Why not jump in the waters and join them? It’d be easier by far than trying to fight off the social currents looking for some sanity when there is apparently none to be found…if you’re into government control of your life, that is.

The problem is we make too much money according to set income standards.

I shake my head and walk away at this point, looking for my Catch-22 baseball mitt. At this point, we would have to downshift to a cardboard box just so the once poverty-level people can now live like the kings Obama intends to make them.

I’m not nuts. THIS is! Obama wanted to bring down the rich, and he’s bringing the middle class down with them.

I guess I’ll hang onto my freedom a little tighter, even if I have to wave my flag from a cardboard box in some alley somewhere. It’ll be all I have left by 2013.
_____________________________________________________

I’m reminded of a quote: “Learn to be subservient to the king, and you’ll eat more than lentils,” said the Roman soldier to Aristippus.

“Learn to eat lentils, and you won’t have to be subservient to the king,” said Aristippus to the soldier.

I’m off to pre-select my cardboard box (a roomy one) and lay in a supply of lentils.

Nilus:

Your scenario is very interesting and points out quite effectively how what most people think is an adequate income really is not sufficient to maintain the lifestyle they want.

A solution often overlooked is how much money is extracted for taxes
and entitlement programs. There is a simple solution to reducing all
of those taxes and at the same time turning around our floundering economy. It’s called the Fair Tax Plan. You can find out more about the Fair Tax Plan by visiting their web site http://www.fairtax.org and really making an effort to understand how your median income couple could
be able to thrive on the same income by not being robbed blind by our federal government’s unfair and confiscatory tax structure.

I understand the need for prudent investments, but just think how much more investment capital would be freed up if government on all levels were not stealing our wealth. The sad part is that compared to what is purchased in the private sector, what government provides in value for the cost paid is usually quite inferior.

Now I would love to receive your input. You have my e-mail address and I really would appreciate your thoughts.

Sincerely, Hal Cohen

I agree with you whole heartedly. You provided numbers for what I already knew intuitively. I am in a better financial picture than most due to my understanding of economics and financial matters. I was not willing to take the risk of buying a bigger home. I save. But where can you put your money without substantial risk anymore.

That is a major part of the problem; we do not save! Why do they have to have such a big house? (I will never buy anything but a fixer-upper.) Why do we need all the fancy stuff, the latest i-pod, blue tooth or what ever? Why, because we have been sold this idea, “We must keep up with the Joneses”. Who cares how fast the Joneses rush towards bankruptcy!
My daughter and I both have incomes below the poverty level in this country. We save close to $1,000 per month. We just bought 15 acres in TN, Cash! (I know you have advises against buying at this time but we need to get out of here.) People can save if they stop looking to the Joneses for guidance.

It looks like you’re making a strong point that most folks don’t take into account the entire expenses associated when they by the home of their dreams (or night mares). It is like buying that first car:

“Dad I can afford that car…. I can pay $129.22 / month … no problem… I make $300 / month (during the summer months I will pull in $450), and I will have some left over for that new radio, speakers and sub woofer.” Dates with the girls are going to be great …. and …. and what did you say Dad?… oh yeah …uh gas..No problem, I got that covered… what and oh ya oil changes, covered, and what? insurance? (how much is that going to be?), and uh tune ups, and uh tires, and car wash (but I can wash the car in the driveway, right Dad) and…and….

Dad could have stopped that train a long time ago…. but he probably co-signed the note and either helped him out a every month, because he didn’t get a car himself at his age, or he let him struggle a while (for the lesson) then filled in the gap to keep his name clear at the bank. The lesson that boy learned was to stretch it as tight as possible and it will all work out. “No problem”.

Something you forgot in the new home Mr. and Mrs. Median purchased. They will need a lawnmower now, weedeater, replace the air filters (apartment complex did that for them). They will “just have to” get new furniture, a washer/dryer/refrigerator, new curtains, and of course he needs a grill to save money eating at home. Hopefully they kept some friends at the apartment complex they moved out of so they can visit them at the pool, play some tennis with them, or use the basketball court. Hopefully the home they bought was less then 12 years old or they willl be looking at a new HVAC system soon, disposal, and dishwasher. Up and coming Mr. and Mrs. Median have to move into the neighborhood that have good schools for their kids, which probably means HOA fees that average $35 / month. And… to keep up with the Jones’ in that neighborhood, they “needed” a new auto/van/truck/boat/etc..

Nilus, have you done a comparison on owning VS renting. Apartments VS that Dream Home. If you haven’t , the details you put in this would be a good start to comparing and giving Mr. and Mrs. Median reason to stay in that apartment VS buying that home.

I honestly don’t know how Mr and Mrs Median survive financially.
My last debt - a mortgage - was retired in 1991, and I never paid a penny in CC interest.
I put every tax advantaged dime (PPS; IRA; 401K, etc.) away throughout my working life and paid max SSC for 35 years.
I retired at the end of August 2003 at age 58.75; took max (reduced for age) SS at 62, and will be a MC beneficiary this year.
My professional liability insurance (never having been sued) in my last three years in practice was $9,000.; $18,000., and $36,000. so it made no sense to continue working for a gross of about $100K.
Sold my Dallas house of 24 + years in Dec 2004 and moved to my house in colonial Mexico. Sold that place and bought a 6500 ft sq 4 story with world class views on the Eastern mountain in the centro of San Miguel de Allende, Gto.
Our annual property taxes are $432. v. $19,000. in Dallas.
We have a housekeeper and gardener and no longer pay (any) income nor US property taxes.
Expat retired life is wonderful!

Nilus,

Great article. It is very clear when one breaks it down as you have. The only way out other than waiting 20 years, seems to be inflation. It would make debt loads affordable and give people some equity as assets rise in value. It would encourage more long term savings if people could get more than 3% interest. Of course, we’d have a little problems with mortgage rates, but the fed could do some fancy manipulation and keep them low and have programs for first time buyers to keep rates low to get people into the housing market and get it churning.

I don’t think we’ve had an honest economy for years. It’s all arranged in a way that doesn’t make sense. So why can’t we have asset inflation and wage inflation and keep interest rates down on borrowing? I’m sure Geitner and Bernake can arrange it! They seem to have arranged everything else and to know how to favor certain entities at the expense of other. If we could just get them on our side and to see that it’s in their best interest.

Thanks,

Carolyn

Hi Nilus!

Loved your e-mail today. My husband and I consider ourselves some of the luckiest folks on the planet. He took an early retirement from BellSouth and, at that time, we figured out how we could live on just my income (approx. $60k annually), so we paid off the house and the cars and started putting away money monthly to cover annual insurance costs, etc. Thank God we don’t (so far) pay anything for retiree medical insurance coverage. So we learned the lessons of living within our reduced income before it was necessary. Then Katrina came and we found New Orleans all of a sudden to be a rotten place to live and found a nice little suburban town in Texas where we have no state income tax (so far). But with things the way they are now we have cut down on our restaurant budget, our vacation budget, and we think really hard before we decide we “need” new clothing, gadgets, etc. We don’t want to all of a sudden get squeezed by health care costs and rising taxes. Too bad we had to be so far along in our lives when this occurred, but we have been advocating budgeting and retirement savings to all of our family and our son for years - maybe now they might listen. Looking forward to more attractive dividend paying investments. By the way, loved your Oscar Wilde quote - ain’t it the truth!

Nilus - Nice article. I’m continually impressed by the quality of analysis and writing coming out of Money and Markets. Your approach to analysis through the Monthly Budget is good. And, that’s because old folks like my wife and I live that way, … on a rigidly enforced, detailed monthly budget. We are still ‘Median’ at the age of 75. We live on about half Soc. Sec. and half return on our IRAs (formerly 403(b)), etc. Unfortunately, right now there’s not much return out there, so we’re drawing down on the corpus of the IRAs (or is it corpii …
And, we’re keeping our 6-year old car one year longer. Keep up the good work, but you might try doing another article, looking at what this crisis means to old folks, too.

Mr. Mattive,

I wished I had your optimism: “In the short-term, it could cause a vicious cycle of economic setbacks. But in the longer-term, I’m confident it’s going to make this country a saner, more stable place to live and work.”

Have you forgotten that this country was populated by sick, poor, deprived, insecure, prosecuted, and quite a few criminally minded people who came from a continent (regardless which country) where a handful of people, called kings, queens, emperors, bishops, popes did their damnedest through more than 2000 years to keep the majority of people in an insane and unstable state of mind and body for extended periods of times? Of course, you know that I am referring to Europe.

The descendents of those people today are doing the same their ancestors did: Wage war, create wars (not on their soil), built weapons to destroy in seconds/minutes what took Mother Nature millions of years to create: ALL IN THE NAME OF DEMOCRACY, FREEDOM, RELIGION, GOD, you name it. What they did not say was that it was IN THE NAME OF GREED AND PURSUIT OF POWER AND CONTROL. The instruments of war creating/perpetuating/maintaining ability were and are the economic basis for this country, called The United States of America. It has made a handful people super rich, super powerful and super isolated where they can’t be reached or touched and from where they have successfully created a nation of people without mind, intelligence, integrity and understanding. And since they have succeeded in keeping the majority mindless, it was easy to get this majority to follow their siren call to buy, sell, spend, waste, obsolete, as many resources as this, otherwise, beautiful country/continent had/has to offer and give.

Until/unless this mind ruling, mind destroying force is being obliterated, and I don’t/can’t see how and when this will ever happen, we will NOT see this country to be a saner, more stable place to live and work

What we see happening today is what the species called: Homo Sapiens has been seeing throughout the eons. What greed and power hunger have created throughout the recorded millennia they also have, even more powerfully, destroyed. The recorded human history has proven that greed, power hunger, and money were and are the driving forces of all, and I say, ALL HUMAN SOCIETIES on this planet for establishing the foundations/believes/living standards which we have lived, experienced, and for some/many have come to hate.

By the way, I am neither a religious, nor political, nor liberal, nor desperate, nor needy preacher or maniac. I am just a 78 year old/young man. I have lived through wars and just expressed what I have experienced. And I am fortunate enough to say that the present state of the country/world affairs are barely touching me.

Your article was great and should be a regular update. We are among that lucky percentage with a gross of over 170K and we live in a low cost area (except taxes) of the country, make full use of 401K opportunity and drive used cars (taking real good care of them). One kid is heading for college in a month and one just finished (and is now an unemployed civil engineer). We have not rolled over a credit card bill in 20 years. Our property taxes are terrible (7K on a 190K home). Living in the Peoples Republic Of New York, all of our taxes are terrible. We take great care not to go into debt. Your article was right on target. The basic cost of nothing (taxes, 12K$ a year for all kinds of insurance, tuition, utilities and general costs are out of control …… and this with an inflation rate which is low). I have no idea how Mr. & Mrs Median make it, nor do I have much idea how my kids will make it on their own unless they both become MDs or DDSs. Soon many of us will be in the “beef business” flipping that beef, taking care of those who ate too much beef or drilling teeth. What a dismal picture. The only answer is to enjoy each day as it arrives and STAY OUT OF DEBT and avoid speculative investments. Who would have “thunk” this would happen when the boomers were young ?

I agree with you. I was going to add the fact that the upwardly mobile professional won’t want to live in an area where homes are $169,000, but you beat me to it at the end of your article. Here in the Phoenix metro area, even though prices have come down drastically, some of the homes going for 169,000 or less are in questionably safe areas. Home prices are still too high, even for professionals. Heck, wages for accountants here in Phoenix are dropping like a rock, even for MBAs and CPAs. It is time to base our economy on something other than housing. Although, since we lost manufacturing years ago and became a service economy, do we have a chance?

What I mean by questionably safe, especially here in Phoenix, is you run the risk of living next to a drop house or something worse since we are the kidnapping capital of the country.

A great article. I lived in the Great ’30’s Depression 1930’s and would have expected your current depression to recover in two years time but the socialist policies being introuduced by Mr Obama notably health care will permanently spoil all lifestyles in the US. In the UK ten years of socialism have ruined penisons, increased health costs making the care worse and ruined family life by putting govt social workers over parents

In Texas the property tax rate is 3X the amount you specify, so housing becomes alot less affordable.

Great article, Nilus. But, wish you had mentioned the “biggie” that we members of American households - and our leaders and media - keep ducking. I refer to the federal government’s budget deficits and resulting ever-growing debt (currently reported as $11.4 trillion). Does anyone recall a U.S. president ever reporting the state of the government’s debt in a State of the Union Address?

Imagine how much worse off households would be if our country’s creditors insisted that we finally begin paying suffiicient taxes to balance our budgets and cap the debt. Or (GASP), what if the creditors even demanded that our taxes be raised further to begin serious amortization of the debt.

For much too long, we Americans have been electing and re-electing leaders who have been sparing us from paying for the spending they approve, and condoning the government’s borrowing from poorer nations to fund our budget deficits and soaring debt. Indeed, we have (HA HA) been pretending we are the world’s richest country.

Fact: The world’s richest country doesn’t have a soaring and probably already unpayable $11.4 trillion debt and isn’t dependent upon borrowing from poorer countries to avoid bankruptcy.

At first, I thought perhaps the recession (or depression?) we are experiencing could be a good thing, that we would learn from it and proceed to restore a fiscally strong America. But, that can’t happen until we household members acknowledge accountability our government’s massive debt problem and accept taxpayer responsibility for servicing and repaying it.

Nilus,
This latest article in money and markets is ,in my opinion, the very
best you have written. Please continue your very practical advice
and words of wisdom.

in my “middle class” neighborhood in the chicago area,they tear down homes and build giant ones on little lots.Average cost 8-$900,000.My average dump is valued at$400,000 but I think I would have trouble getting half that.I am barely making it since my property tax is up100% in 5 years.How can this be housing prices plunge but in this wonderland ,everything goes up!iI told them I would gladly sell them my home if they brought over a suitcase with the 400k but they havent got here yet.Government at its best.omg!!!
ps and to think 6 years ago my house was $189,000 according to their figures.

Great article! It is such a relief to hear an expert saying what we having been seeing for years. Even before this credit bubble burst, we knew they only way our friends and neighbors were affording their lifestyle was through debt. In LA, the expenses and housing prices are even higher (I would JUMP at a $169K house here), but the incomes are right around your Mr and Mrs Median.

I noticed you didn’t even talk about debt service expenses in your ’spending plan,’ which pretty much any upwardly mobile family would have. Most of us out here have between $800 - $1000 a month in credit card and loan charges; there goes the 401k savings.

Thankfully, everyone I know here is hunkering down, and changing their lifestyle. Savings has gone up, and we are all paying down debt. We’re all scared that taxes are going to jump, (local, state, and federal) because LA and CA are both close to bankrupt and the Treasury doesn’t seem that far behind.

And what about inflation? How would you suggest people in our situation prepare for inflation?

I agree with your comments in general. However, I do not think a married couple,
plus 1 or more children, making 72,000 per year pays 14,400 in Federal income taxes.
The amount likely is 50% (or less) of that figure.

Nilus,
All I can say is “amen”. I am a financial adviser and I see what you are addressing more often than not. After a real look at cash flow, “real wealth” has been squandered on lavish remodels, flat screens, expensive vacations and luxury autos. When you look at the historic ratios of income to purchases, it really puts things into perspective. Keep up the good work at Weiss, one of the few sources of reality.

Actually, I think your evaluation is actually somewhat optimistic. You seem to have left out the interest on the Median Credit Card Debt. Add that and it is likely that you’ll end up with a negative net income.

I am convinced that saving has not actually increased, but in-fact, it is more likely that debt retirement has increased making it appear so (if not only due to the unavailability of the debt).

The real question this begs is, why aren’t we paid enough to live on any more? I remember time way back when, ok the early 80’s, where a family could survive on a single income with a stay-at-home mom. Not thrive certainly, but at least survive. What happened?

Overall I like your article and family budget analysis. But here’s one exception:
You say: “Then, Uncle Sam will want his “regular” cut. For a couple making $72,000 that would come out to about 20% according to the IRS. Say goodbye to another $14,400!”

20% is a much exagerated from reality. MY household is more or less in this income category, I Know first hand. There are multiple federal tax deductions which significantly reduce the 20%… probably down to about 7%, on average. There’s the standard deduction, there’s the child tax credit, ect. Our four person family’s income is in this range, and when all is settled, after April 15, I figure we pay 20-25% TOTAL Taxes, including Social Security, State, Federal.

Thanks, Sean Feder

100% correct but not far enough! I’ve been watching this run-up in housing prices for years wondering how long this could last. In one case, a neighborhood was cited where the median income per household was $39K per year and the median house price was $300K. There’s only one word for that, impossible. Add to that over $20K to buy a new(non-luxury) car, plus $180 doctor’s office visits and $120 per month prescription prices and its easy to see why things are falling apart financially. The total amount of debt in this country is so huge, there literally is not enough money to pay it off. Some blame banks, some blame business, but the blame is shared equally by anyone who owes more than they can afford to pay, period.

Ron Howard is on the mark with his above comments, and this perception of a consumer culture public has obviously paid him dividends.

Dear Nilus:
A very succinct portrayal of the median range family budget.

What percent of families are “median” range? What shape is the bell curve, if it is a “normal” bell at all? Median, in a normal distribution, assumes about a 66% slice of the population evenly distributed around the mean plus or minus a statistical amount. I’m quite sure that the distribution of household income is greatly skewed, mostly toward the high end thus “over-weighting” the lower end.

http://en.wikipedia.org/wiki/Skewness
This may really show a comparatively fewer households at the very high income end. Depending on the shape of the curve there could be many more households at the lower end meaning things are a bit worse off, especially if the shape of the “median” housing results is normally shaped. If that is the case, there are more people living beyond the debt levels due to housing costs than you point out, and thus, even less left for discretionary, i.e. economy stimulating, activity.

This could also help explain the inability of many lower income households to be able to pay their mortgages. The real estate bubble smiles again to taunt the economy!
Jim

Well …… I have now read all of the comments and I have two comments. First, as is shown here, lots and lots of Americans are smart enough to have figured out that the system in which we live will work for you, but only if you do not go with the flow and do not listen to and follow conventional wisdom (which seems always to be wrong in the long run). Second, all things that appear to be too good to be true, ARE. That goes for all the “great” lease deals on very expensive cars to “sure things” in the stock market to, “buy and hold” to the “value of real estate never goes down” to “it is different this time” to all of the fluff and cheer leading that goes on daily on CNBC and Fox Business.

Thanks for your article. It was GREAT and thanks to all who commented. I much enjoyed reading both the article and the comments. As long as there are people like those who commented and a web site like this one with all of its superb commentary, there is hope.

I’m from australia and I find your figures doubtful. Australians earn about $56,000pa, and pay a higher tax rate. The average home loan is about AUD$250,000 @ 6% p.a. and the cost of living the same or higher. truth is a bank would lend this person about $200,000 under current guidelines as they have to take care under financial law that the borrower can repay. we don’t have the housing crisis you have in fact house prices are increasing. I would guess your example would be living on a much tighter budget and foregoing expenses you assume and the averages are probably wrong.

Right On! When I was a boy I remember my dad complaining about the amount of taxes we had to pay for WWII. My dad’s small business put him in the 42% bracket. I also remember some tax brackets of 75% to 90%. To pay for the government and the Fed’s folly of today debts we’ll pay higher taxes and Social Security will be extended to 70 or 72, also, we live longer. The road to recovery will be A LOT LONGER [10 - 15 yrs. ]than most people realize. However, thanks to Martin and Safe Money my wife and I are a lot better off than most. No, it wasn’t a get rich quick game. Just regular monthly investments of small amounts over 15 + years has us ready for retirement when it arrives. Thank You, Martin and God bless.

My original message some how got lost. Here I go again . . As a young boy [1950s] I remember my dad complaining about the 42% taxes he had to pay and mentioned that some people paid as much as 90% in taxes. My best guess is that we will see higher taxes before long. And your right we’ll see an age increase in SS.

I agree with your numbers for the most part since your guessimating things. And, for the most part, a lot of people do not realize the dire financial consequences the government, the Fed and Treasury have put us in. I think we will be 15 to 20 years getting out from under this morass of financial shenanigans and redeveloping the middleclass. For now all I can see is a two caste system developing: The haves and the have nots.

Fifteen years ago or so we started with Safe Money and put aside a little every month and when we received a raise in wages we put half into savings. Yes, we lived within our means. And thanks to Martin and Safe Money we have managed to stay above water. We have no debt to speak of and never used our credit cards except for emergencies or going on vacation [ we didn't want to carry a lot of cash ].

When Martin warned of the housing bubble we sold our home and moved into an apartment. It was wonderful, we saved so much money and we put it into our savings, after we bought my wife a new [ used] car [ hers was 24 yrs old; and, I got a new [used ] car for myself, mine was a 20 yr. old PU truck. We got good cars at excellent prices. Cash is King!!

What can I add: Thank you Martin for Safe Money and God bless all of us was we move through this quagmire of financial duplicity.

Right on. They the rich don’t want higher taxes and I have the answer. Don’t tax the rich more pay the working class average joe more. Simple in 1980 a worker in Utica at the Utica beer plant made $20 per hour. 26 years later that is considered good money today in upstate NY. Pay the poor more if the rich happen to make less because of this so be it. At least they are not paying more in taxes. Good Luck we are going to need it.

As a Financial advisor in the 403(b) market I must say your numbers are on target. In fact I would go a little further. When I meet with a client I go thru a budget worksheet. The purpose is to find out what thier cash flow looks like. In addition to the most common expenses that you touch on - my worksheet also includes childcare expenses, credit card payments and personal expenditures such as going to the barber / hair salon, clothing, laundry and dry cleaning, charitable and commuting expenses.

I would then have the client subtract their net income from the monthly expenses to arrive at thier monthly cash flow. Once this is put on paper most people are surprise at the amount that goes out each month.

Great Article !

I arrived at these same conclusions in 1992 - when I had to take a class in Lotus-123 (remember that?). I pumped in my personal finances and couldn’t believe how bad my future looked. I was a systems analyst at Travelers Group in Hartford back then - and all Connecticut was awash in $ 390,000 homes (financial traps) - all luxury housing.

I knew it couldn’t last. My colleagues were buying into that crap 5 years earlier and got wiped out when the economy went south.

Bank of New England went bankrupt by giving out million dollar loans to “developers” driving pickups with dirt under their fingernails. These developers knew that once the upfront costs of the excavators, framers, plumbers and electricians were covered - it made perfect sense to keep them there another 3 weeks to stretch that 3 bedroom “affordable” home into a 5 bed luxury home.

The problem was - the average Joe didn’t have luxury jobs to pay that luxury mortgage. The whole thing fell apart with a bang. On misstep and default was a month away. All New England was living like this - pretending it was healthy - when in reality it was a fantasy.

I saw the writing on the wall before the bust - and took a job in Saudi Arabia. For the past 16 years I’ve legally avoided paying Federal income tax (the “expat” tax exemption of $ 85,000). Not owning a house in good ol’ Connecticut dropped me off their income tax radar too.

Since then I’ve been able to put close to $800,000 in the bank. But I know houses are STILL overpriced. My plan is to wait for the US government to drive the dollar into hyperinflation, declare national bankruptcy, drive the asking price of median homes down to $45,000 like my dad paid back in 1965, and move in and put my feet up.

I’m not gloating. This is sweet revenge. I was locked out of the Ct. housing market for decades due to the developer’s and banker’s greed - in not building truly affordable housing. You guys made my life miserable - and now its payback time.

Soon - housing across America will be truly affordable - when this country gets off the financial crack cocaine - and back to basics like good ol’ Mom and Dad 50 years ago.

Rob

Sir,
I am English and live in England with my American wife. We know of 2 “Median” families in the US who are nearly insovlent but their expenditure for the kid’s school sports is mindboggling. They are paying out nearly $200 per month so you grossly understate “Median” expenses. Here in the UK [which is worse off than the US] school sports cost a “tenner” here or a “fiver” there, not hundreds of $ per month.

There is an American lady nearby who has lived here in the UK for several years but wants to go back to live in the US. She can afford to buy a house cash [so no mortgage] in the US and she is only in her fifties and can do anything to earn an income. She has never been in trouble with the police here and she still has her US SSN and is still a US citizen BUT SHE CAN’T RETURN TO THE USA. The reason is that she had 2 minor illnesses whilst living here [not life threatening] and thus her health insurance in the US would be so astronomic she can’t come back. I am unclear about this but is this what you call the American Dream whereby a US citizen is forced into “exile” because healthcare is unaffordable?

Regards.

I noticed one of your posters said he was from Australia. I’m In England and a lot of newspaper ads shout “Live in Australia”. A quick check on the currency exchange reveals that the Australian Dollar is only worth 48 pence (79 cents US). In short, Us Brits are leaving in droves! I’m not as it is too expensive for me to do so. Your analysis is more or less spot on regardless of currency or where folk are in the world. If you’re earning a median income, or below a median income, the fact is that you will struggle.

Mr & Mrs Median don’t have enough money to save. Also it is difficult for you to say what is going on in a specific locality even in the US, as there are many state laws/taxes etc. Doing something like that for the rest of the world is nigh on impossible and unfair to you as you would spend your time 24/7 collating the data required. We have our own financial whizzes here in England, and they tend to agree with what you’re saying: that is, pay your debts off, live frugally and don’t buy the biggest widescreen in the TV store! I find your column an interesting read and it makes sense to take notice. Your other posters have made a few comments about England, or rather the UK. The pound has risen quite a bit, but not as much as folk expected it to.

The problem is that people still want to carry on regardless buying houses, the widescreen TV, the big car without thinking about running costs despite them having no or little money to spare. Your article has woken a few people up to what they need to do, regardless of whether they want to or not. Dr Weiss’ page on the collapse of California also hit home to how close not just those in the US are faring badly, but around the world. A lot of retail jobs (here) have gone due to stores closing, foreign investors have (a lot of American companies have left the UK) pulled out and the service economy has hit the skids. If Dr Weiss’ other predictions come true (and I suspect they will, he’s been right so far), I really dread to think what will happen.

PS: I’ve just noticed Gregg’s comment above. We have the NHS here, a social security service paid through what is known as National Insurance, which is a tax taken at source when people are paid during their working life.

Thing is now, that people are demanding that their local healthcare trusts (committees that run the hospitals) obtain drugs that cost several thousand pounds (or dollars, depending where it comes from) so they can be treated for whatever ailments they have. Cancer drugs are particularly expensive, but folk still expect them to be available, placing a huge demand on regulatory bodies that approve them and the managers in the hospitals, leading to what is known as a “postcode lottery”. That is, you might get the cancer drugs in London, say, but not Manchester. The demands placed on the managers is huge. Take, for example, broken legs VS terminal cancer. Those with terminal cancer would like to have the (expensive) drugs so they can have a better quality of remaining life, those with broken legs want to get back to work. Managers have to decide the budget. Broken legs win. Cancer sufferers go to court. Court says “Give them the drugs”. Manager says “Can’t afford it”. Government steps in. Cue lots of political argument. Government says “Give them the drugs”. Manager says “Where’s the money coming from?” That’s the current dilemma. I hope this gives at least a small insight into how it works here in England.

Your article has a valid point. However your federal income calculation for Mr. and Mrs. Median is too high by $8,000 - $10,000. You didn’t take into account standard deductions, personal and spousal exemptions. If you add deductions for children, and 401k and IRA contributions the tax will be even lower. The federal tax rate for married filing jointly with an income of $72,000 is lower than 10%, not 20%. I suggest that you fix this error to make the argument more realistic and credible.