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VikThorior t1_jdwaqws wrote

Do you consider yourself rich or middle-class?

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TriFolk t1_jdwkhaw wrote

It’s all relative right, OP can certainly consider himself rich, as he has every need covered and saving 100k per year. However, if you actually look at what rich people bring in, the difference between that and OPs (or anyone below) is staggering.

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budgetthrowaway1209 OP t1_jdwkqo3 wrote

I think it largely depends on how you define the classes and what segment you’re looking at.

I think (not sure) class is mostly driven by wealth, so we would likely fall in the upper-middle class range, particularly in similarly geos (LA, SF, NYC), which is what I’d use to compare. Nationally, maybe a bit higher.

On the other hand, if we’re talking about lifestyle or disposable income for LA/SF/NYC, I would say probably even middle class.

Would you agree with that?

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VikThorior t1_jdwn5cl wrote

I was asking as it has been shown again and again that most people believe they are in the middle-class, even when they are obviously not.

You are in the top 1% in the US. Which is clearly not the middle class. In LA/SF/NYC, you are in the top 2%, still not middle class at all.

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budgetthrowaway1209 OP t1_jdwtt0r wrote

Thanks - I hear you about the psychology of underreporting, but I feel like there has to be (or should be) more nuance.

And the one or two studies I’ve seen have had issues with lack of segmentation or reporting scales, or articles written that misconstrue the insights to get a good headline.

Like I mentioned, I don’t think of class as a 3-point scale solely on income (upper, middle, lower). If that were the case, I don’t think you would need surveys. IMO, it’s a mix of wealth (not just income), lifestyle & disposable spend that needs to be looked at in a segmented (geo, age, etc.) to have value. For example, maybe when we’re in our 50s, I would think of us as a higher class, but not with our high, high fixed expenses and coming out of school a few years ago. It should also be more granular than a 3 point scale, but that’s neither here nor there.

Do we have a 1% or 2% income for the US? Sure. But as /u/TriFolk mentions, it’s more complicated.

Anecdotally, I just purchased some jeans the other day and signed up for a rewards program to save $ on shipping and found a discount code, so it’s hard for me to classify us in the same group as the older folks driving Lucids around Manhattan Beach, it that makes sense.

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InspectorCluesNo t1_je8vl8w wrote

No, you aren't middle class. Not by any appreciable metric. Your gross income is 8X the average HH income. According to https://dqydj.com/average-median-top-household-income-percentiles/ and even your own admission, you are in the top 1% of earners. You saved $150K last year, which is twice the national HH income.

And I'm sure all those people 'driving Lucids around Manhattan Beach' say the same thing you did: "It's hard for me to classify myself as upper class when I only have a Gulfstream 4. It's not like I have two G800's like some of the so-and-so's I see at the private hangar."

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a32167 t1_jdvmcbe wrote

Honestly looks like you're doing as well as you could. Your mortgage is high so it begs to ask about the apr on it vs the rate of return on investments. I e. basically what's more efficient in your case - to pay back the mortgage faster vs to aggregate interest in investments.

Your effective tax rate also seems to be quite high - about 40%. Does the number include interest itemization?

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budgetthrowaway1209 OP t1_jdvq5yg wrote

Interesting, is there a benchmark for the effective tax rate that we should try to get to? I thought we were doing ok since we itemized deductions to a bit more than standard (mortgage interest and state taxes but both are capped) and some solar credits. Will definitely look into this thank you.

Our mortgage rate was a hair over 3%, so I think we’ll be holding onto this one for a while given state of thjngs today…

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a32167 t1_jdxv1dd wrote

Oh yeah with 3% you are definitely best served to have it as long as possible and rather invest the spare cash.

For tax: I got it wrong. As mentioned in the thread 40% is actually a pretty good rate.

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budgetthrowaway1209 OP t1_jdyge6k wrote

Thanks and yes, they’ll have to pry this mortgage out of our cold dead hands, but does make moving for whatever reason more difficult, I suppose.

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FlyingSquirlez t1_jdxs95b wrote

Sheesh, only 568k? Pretty sure you can make more than that as a checker at Vons.

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crossedtherubicon20 t1_jdxuz3t wrote

Would be nice to see this in an income statement format spreadsheet..

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SsurebreC t1_jdybl98 wrote

Since you asked for help, some ideas:

  • I suggest you talk to a tax professional to see if they can reduce your taxes or, at least, funnel some of that money elsewhere rather than taxes.
  • odd question: how are you contributing to a Roth IRA when the highest income limits is $228k for this year
  • I'm assuming that you have a good mortgage since you can't really refinance right now. Still, $98.5k/year mortgage seems pretty high. Is that a $2m mortgage? That can't be right or, at least, you definitely can't consider yourself even upper middle class even in CA.
  • you have to consider that renovations/furniture is a one-time cost. You won't have the $43k/year in expenses, right?
  • $4k/year for Internet and cable? I know it's not a lot of money compared to other expenses but try cutting the cord and just having high speed internet? $333/mo seems obscene even for CA.
  • note that you're spending quite a bit on restaurants vs. buying actual groceries. Since you're spending ~$165/week on average, try not going for an entire week. Or if you're going out every other week then that's $327. That's some expensive wine. If you stop doing this once a month then you'll save $2k/year just on that.
  • what's the difference between Internet/cable vs. entertainment which is almost another $300/mo. You're paying over $600 on these. Are you getting $21 worth of fun every single day? Maybe cut something there.
  • how much money is left on the family loan repay?
  • you could contribute more to the 529 plan. Based on your family's level, I think you'll have those higher needs.
  • what's the $11.5k household? That's almost $1k/mo - what's that for?
  • am I assuming that you moved $40k to a brokerage plus saved $33.5k in cash? Why not:
  • move some more cash to the 529 plan
  • repay that family loan so it's not hanging over your heads
  • think about getting a better car where you're not wasting $2.5k/year on maintenance
  • move more money to the brokerage to get a higher investment return
  • also you're contributing only $31k to a 401k?
  • once again, max contribution limits apply here and you might be filing taxes separately. That still doesn't explain the Roth where you hit limits. Again I'd check with a tax advisor or maybe get a different opinion.
  • I'd definitely contribute more to the 401k

Basically you have the following general problems of which you're already aware:

  • your tax situation isn't optimal and could be better both from how much taxes you're paying and how little you're contributing to retirement and educational funds
  • your spending is a bit much, even for California. You can do better, especially when it comes to entertainment: both restaurants and entertainment
  • considering how much income you're getting and the size/interest on that family loan, I'd pay that off
  • halt the bleed of the stupid expenses like upgrading to a more reliable car where you don't have maintenance costs (perhaps even a lease would be cheaper).
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Neowynd101262 t1_jdxqpg2 wrote

How much do you have in savings to date?

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budgetthrowaway1209 OP t1_jdva5i1 wrote

We just did our taxes, so I thought it'd be a good time to finally see how we are spending our money - always thought these charts looked nice and decided to make one. Welcome any suggestions (or criticisms).

A little about us:

  • Family of 3 (2 adults in our mid-30s and 3 year old) and just welcomed another baby last December

  • Live in SoCal and both parents work in Tech

  • Bought a house in November '21, so did some renovations / improvements (e.g., solar)

  • Have 1 older car and will need to get second soon

Learnings and questions:

  • Spending half of our take-home on housing was a surprise and definitely realize we can't do the same amount of improvements each year

  • Not looking forward to doubling our daycare costs soon...

  • Internet, cable & phones (typo in the pic) at $4k is a lot in aggregate... Will look at reducing

  • Any suggestions on how we can improve?

Notes:

  • Methodology: Tax return for income numbers; categorized each transaction in our checking and credit card accounts for 2022; numbers rounded to nearest $500

  • "Internet & cable" includes cell service

  • "Restaurants" includes buying lunch at work for one of us, and we tend to take-out somewhat often given busy work schedules

  • "Household" buckets a lot of stuff like children's toys and books (a surprisingly high cost, retrospectively), clothes, general household products

  • Source: 2022 tax return and spend data

  • Tool: sankeymatic.com

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TriFolk t1_jdvcto4 wrote

Thanks for sharing. It sucks that people would downvote just because your family is a high earner. Have you Considered a wealth management company to help you? I thought you couldn’t not deduct your Roth IRAs investments if you earned over a certain amount?

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budgetthrowaway1209 OP t1_jdvhde4 wrote

Thanks! Don’t mind the downvotes as it was a fun exercise.

I hear you about the wealth management company, but not sure if it will benefit us… I don’t think we have high wealth, just high-ish income for now. We have 2 large blocks of income and a few large blocks of expenses that will remain constant (and sadly still big) for a while. Maybe when we’re a bit older and have more “wealth” to manage.

We did 2 backdoor Roth contributions, which is why the funds come from post-tax money.

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leg_day t1_jdvtdz4 wrote

The backdoor roth is such a game changer once you hit income levels where it's helpful and you can fully fund it!

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budgetthrowaway1209 OP t1_jdvwjfl wrote

Agree! Feels like we’re cheating the system, but I guess we’ll take it where we can get it.

We’d like to eventually explore mega backdoor Roths but don’t think we have the savings for that yet.

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leg_day t1_jdwn6vu wrote

I thought the same. But when you add it up, your effective tax rate is 40%... meanwhile, Trump paid an effective tax rate of 4% in 2018. And he's certainly not the only true 0.1%er paying ridiculously low effective tax rates.

So take any win you can get against the system.

(FWIW, 40% effective rate on a 568k W2 income is pretty damn great especially in a high tax regime like CA. Similar income profile in NYC and I sit around 45-49% effective tax rate.)

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budgetthrowaway1209 OP t1_jdwvwp1 wrote

Thanks! That’s a lot of what I was looking for with this post (beyond making pretty color lines) - some benchmarking for tax, savings, spend.

I think our tax rate was helped a lot last year by some renovations we did that had federal and state tax credits (e.g. solar) and our (outrageous) mortgage interest & state taxes.

And get me wrong - will take every take break we can get… I’m fairly liberal, but hope for our sakes the new proposed SALT cap lift gains traction. I can understand its not the most progressive and probably shouldn’t be lifted entirely, but at least make it $20k so it’s fair…

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leg_day t1_jdx7am9 wrote

I'm more liberal than most but support completely repealing the SALT cap. Why? I'd rather my taxes go first toward city, county, and state taxes, closer to where they are spent.

Lower city, county, and state taxes are correlated with much higher spend from federal tax dollars.

I can talk to the city council member to advocate for funding a project to refurbish a local park. No way I can meaningfully talk to my congress person about how federal tax money is being spent in Iowa.

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budgetthrowaway1209 OP t1_jdy3elt wrote

Yea I can see that and have heard that as well. Tbh, I wouldn’t shed a tear if that happened.

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ottoottootto t1_jdw16e2 wrote

I downvoted because I am tired of seeing personal finance Sankey thingies. I don't find them interesting. Your assumption is wrong.

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