Simple math

Let’s say your gross income is $50,000. That means as a married person using the standard deduction your federal tax bill is about $2672. You also pay $3,825 in FICA and perhaps minor state payroll taxes and possibly state income tax. Let’s say that adds up to another $2,500.

So, what you actually earn is about $41,003 and then there is savings of at least 10% so take off another $5,000 and your standard of living should be based on cash in hand of $36,003 per year. You can boost that a bit by saving on a pre-tax basis.

An income of $36,003 should determine how you live and spend. And most important what debt you use to do it.


  1. A great note. Short and to-the-point. Most people confuse ‘gross income’ with ‘net income’. It irritates me to see things like ‘the median income for a family of 4 is $62,000’. Nowhere does it say ‘gross, before taxes’. The take home is probably $54,000.


  2. That is the best way to think. Pay yourself first and learn to live on the rest. Years ago I voluntarily ‘froze’ my salary so that every COLA or real raise I received went to retirement a 401K. After a few years I felt the pain of not getting a raise but I kept it up. We chose to live below our means and today my net retirement income is more than what I was making when I was working and, we are still saving!


  3. My Dad – Lord rest his soul – always told me how evil the graduated income tax was. He actually worked when what you made was what you took home…in CASH. He and like-minded people warned that we should never let the government get into our pay before we do. He also warned against eliminating the gold, then silver standard. My Dad never finished grammar school, but I think he was smart as hell.


  4. It would seem like simple math and this is how I live my life but it is not. Take a family of 4. The IRS allows qualified filers to get Earned Income Tax Credit which averages about $2488 (could be more). Then there is the Child and Dependent Care up to $1050 per child under 13 or $2100 per year for two kids. Also there is the Child Tax Credit up to $2K per child or $4000 for the family of four. So far the total is $8,588 for the tax credits that I know about since I haven’t qualified for them in decades.

    Your should base your standard of living on $36,003 but you end up spending really an additional $8,588 for a standard of living of $44,591. This extra money could go to retirement, but we all know that refund check is used for everything but. The big issue is when all the credits go away and then the people can’t understand why they are short money every year. It because of instead of making $58,588 / yr then are truly making only $50,000.


  5. Since you mentioned debt here, Mr. Quinn, I’d like to add one more recommendation ….

    ONLY use Debt to fund/finance Investment purchases, e.g., a home, a car (if you need a car to get back and forth to work,etc.), remodels that enhance the value of your owned property, etc.

    Never, never, never use Debt to fund/finance your Current Consumption*. That is the path to meeting new people – debt collectors, attorneys, bankruptcy judges, and the like.

    *The ONE common exception to the rule of not using debt to fund/finance Current Consumption is if you use a credit card to pay for groceries, utilities, other recurring purchases – but that, ONLY IF you also pay ALL of your accumulated credit card debt every month when it is billed. If you are running a credit card debt balance every month instead, well, get ready to meet those “new people” I mentioned above!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s