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Friday, 6 August 2010

A comparison of Income and Spending

2millionblog.com recently posted a monthly income and expenses 'snapshot', so I thought I'd compare it with our current budget. I've adjusted the budget figures I recently posted to add back in the superannuation contributions to our net pay, and exclude business, rental and investment items to be comparable to 2millionBlog's figures:

_______________________________2millionBlog__________Enoughwealth
Net pay........................4,916.................6,750
Wife's Net pay...................751.................1,667

Total Income...................5,667.................8,417
- Total Expenses...............4,853.................6,917
= Saved..........................814.................1,500

Expenses:
House payments.................1,494.................2,817
Food.............................861...................850
Vacation.........................661.....................0
Utilities........................251...................250
Gifts............................112....................30
Charity............................0.....................0
Petcare............................0.....................0
Miscellaneous....................188...................185
Healthcare.......................185...................400
Retirement plans.................850.................2,000
Transportation...................251...................235
Uni fees and texts.................0...................150

One thing that is very noticeable is that our expense for food, utilities and transportation is almost identical. On the other extreme, we spend twice as much on house payments -- explained by the relative average house prices in Australia compared to the US, and mortgage interest rates. I'm also socking away more into retirement savings - which makes sense given my age and income level. I'm spending considerably more each month on healthcare (due to prescription medicines for DS1, DS2 and myself) and have some university expenses (the Masters course I'm studying part-time) which 2millionBlog doesn't have. In contrast, he had a sizeable vacation payment for a cruise compared to our having no monthly expense or savings for a holiday (as we plan on having a virtually free 'staycation' at my parents' farm).

The other big difference is that $1,350 of the 'saved' amount is actually interest I'm paing each month on my St George Bank investment loan (home equity loan). The payments have to be funded out of my salary income as all the investment income is already earmarked to cover the margin loan interest costs. The theory is that this effectively 'converts' taxable salary income (reduced by the tax deductible investment loan interest) into long-term capital gains (on the investment) that are tax-deferred, and, under current rules, concessionally tax (at half my marginal income tax rate). In practice this is only a *good idea* if the total ROI of my investment (dividends and capital gains) exceeds the interest cost - unfortunately this hasn't been the case over the past decade due to the bear markets of 2000/1 and 2008/9.

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1 comment:

2million said...

Nice- this is very revealing - cool. Deductions in my paycheck are not included in my expenses so things like 401(k) [retirement] contributions and healthcare insurance costs are not captured here and may explain some of the differences as well.