Where It All Goes

by Tyson Steele

If you've wondered where all your hard earned profit goes, here are some of life's major expenses for your consideration:

Taxes

According to the Tax Foundation, Tax Freedom day is May 5, meaning that every dollar you earn from the first day of the year until then goes to taxes. In other words, the average person works nearly three hours every day just to pay for taxes.

Then you have state income tax, property tax, sales tax, excise taxes, capital gains taxes, estate taxes and all sorts of other taxes and tariffs borne by companies before you even purchase their products. (By the way, the federal income tax didn't exist until 1913 when a 1% tax was instituted on earnings above $20,000.)

All in all, more than 50% of your income goes to taxes each year.

lnflation

Actually, taxes aren't so bad when you consider that you get roads, infrastructure, fire, police and lots of other benefits. But inflation, now that's another story . . .

The historical rate of inflation for the last 25 years is about 5.8%. At that rate, a 50-year-old who plans to retire on the equivalent of his or her $100,000 per year income, will need to generate $238,000 per year at the age of 65 just to have the same spending power. In other words, they would need a net worth of at least $4.4 million at retirement!

Your Home

Most people spend the largest portion of their income for housing. Obviously, this is no surprise to you.

On an 8.5% thirty year mortgage, you will spend $553,618 for a home that was purchased for $200,000. (And you thought you really scored when the seller reduced the price by $3000!)

Servicing Debt

You probably noticed that the interest paid for a home is often greater than the price of the home. But that's only at 8.5%. Imagine the difference when the debt is carried on a credit card at 18%!

Suppose that over the course of a year you charge $1,800 in meals on credit cards. If you make only the minimum payment, it will take you nearly 14 years to pay off your meals. (And you will pay approximately $3,141 in interest alone!)

Children

According to the USDA, a baby born in 1995 will cost families in your income bracket about $350,000 on the average. And that doesn't count the fact that, for a baby born in 1994, the cost of a college education will be $180,000 in-state and $300,000 for the ivy league. (That's $346,000 if your child is going to Yale.) Then consider that the average cost of a wedding is $17,000. (And that's in today's dollars.)

Junk

Believe it or not, junk adds up. Cable TV will cost you an average of $3600 over ten years. A daily Starbuck's can add up to $900 per year. Instead, if you were to buy Starbuck's stock each year with that money and the stock gained an average of 10% per year for 20 years, you would have $51,547! (Not bad for pocket change.)