Lifestyle is Creeping In

Chris in Dallas has a question about leftover income. After everything is taken out, he’s left with about 45% of his income. Are people able to save, give, and invest and live on what’s left over?

QUESTION: Chris in Dallas has a question about leftover income. After everything is taken out, he’s left with about 45% of his income. Are people able to save, give, and invest and live on what’s left over? Dave says yes, but the savings rate is dependent upon household income.

ANSWER: If the leftover is your income, minus your taxes, minus your giving, minus 15% going into retirement, you ought to be able to live on that. Yes, that is what most families are able to do. Are they able to save aggressively above that? Well, that depends on their income. That’s why it is a percentage, obviously, rather than a set amount. Is it harder for someone who makes $30,000 than it is for someone who makes $130,000? Sure. So is everything else.

The average household income in America is $50,000. That’s a lot less than 45% of your income. So how are those people getting by? It is lifestyle. I don’t think you own a yacht, and I don’t think you’re traveling on private aircraft. But you should be able to live on what you’re making.

I think you’re probably dying death by 1,000 cuts in your budget. That’s what keeps it from feeling like you’re being extravagant. I think you can go through each one of those areas and trim them a little bit. You make three times what the national average is, and you can’t live on 45% of that. That’s just not logical. You’re right—I don’t get it. You should be able to do that. It’s not that we’ve missed a calculation somewhere. You have a lifestyle problem.

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