The Definition of a "Living Wage"

[Boss]

Let's say I have $1 million in municipal bonds.

As soon as I sell my asset (the bonds) they are subject to 39.6% federal income tax.

You are saying that you are such a stupid investor that your 1 million bond investment is all subject to the "De Minimis" rule?

If you are not saying that, then you really are a liar because your tax owed would be at a capital gains tax rate.

What the fuck is the matter with you? You think I am not sitting at a computer with Google. Dumb fuck.

No, you are wrong. Gains in interest from my investment are taxed as capital gains. Once the asset is cashed in, it becomes taxable income at the 39.6% tax rate, unless I incorporate and transfer it to my corporate account, then it would be subject to the 25% corporate tax rate.

There are a few other strategies I could use, like income averaging, but my luck would be that Emperor Obama would decree income averaging void by Executive Order or something.

I assume you are sitting by a computer, and I also assume you know how to use Google. But you are an idiot when it comes to tax laws and business, so I am not too worried about you besting me in such a debate. Regardless of ANY tax liability, an abject moron could see that it's smarter for me to leave my money where it is, where it isn't being taxed and earns a modest return with no risk.

 

[Boss]

This is not to say that we can return to the demand-centered policies of the postwar years, when economic growth was well above where it has been over the last three decades,

I don't believe we will ever again have the large numbers of citizens with good disposable incomes like we had in the not to distant past. The jobs that earned that good income are gone. And are not coming back in numbers great enough to make a difference.

Lets say we are moving away from the idea of people being able to move up in "class" through hard work alone; ie from lower to middle to upper middle to affluent to rich to very rich. Lets say we are going to a society of the have and the have nots.

The have nots will be counted on to purchase basic living necessities but will not be much of a contributor to growth in the discretionary spending markets. Their new TV will come from Craigslist or Goodwill or a friend with a good job selling his old stuff.

The future does not look too bright for those without the advantage of education and contacts. Who you know has never been more important than it is today. Relationships with other successful people will be paramount.

If you are poor, un educated, lacking good skills in math and reading (which is millions of people) then you are fucked for your lifetime. Survival will be what you concentrate on.

And we will have a hard time growing like we used to. IMO.

America needs to read what you just posted and understand something... We can either throw up our hands and give up on the American way of life, or we can roll up our sleeves, re-invigorate the free market capitalist system which made America great for 200+ years, and create more economic prosperity than we know what to do with by promoting free market capitalism as opposed to trying to destroy it. It's entirely up to US!

You've just given THE best reason in the world for why Americans need to stop voting for you people, stop listening to your Marxist crap, and give people a chance who know something about business and economics. It's not time to give up, have a pity party and bury the American Dream. It's time to marginalize the Occutards and Socialists, get rid of the "1% vs. 99%" crowd, and start rebuilding American economic prosperity. That begins with cutting government spending and decreasing our debt and deficits. It also involves encouraging (not discouraging) the wealthy to use their wealth to create opportunity and jobs. It also involves securing our borders and sending illegal aliens back where they belong so that average Americans have more jobs and resources available. Finally, it includes getting rid of Obamacare, the Department of Education, EPA and IRS.

 

[asterism]

A common crisis of capitalism occurs when the drive for lower operating costs (of which low wages is central) leaves wage earners with too few dollars in the aggregate to consume.

When Reagan, who was part of a movement that dismantled our high postwar labor costs, faced this crisis of weakened consumer demand, he aggressively expanded credit to consumers. (Our substitution of credit for wages/benefits is obvious to anyone who looks at a chart of what happened to household debt starting in 1980.)

By fixing weak demand with credit, Reaganomics merely delayed the crisis, leaving us in a situation where American families are now now simply too indebted to consume at the needed levels to support robust economic growth.

What the OP doesn't understand is that the same old supply side reforms that worked so well in the late 70s and 80s are not as effective when the problem is demand centered. (FYI: this ignorance is typical of powerful movements (on both sides): people tend to calcify around a narrow framework which causes them to misread the problem.)

This is not to say that we can return to the demand-centered policies of the postwar years, when economic growth was well above where it has been over the last three decades, it's only to say that we should be very weary of the current supply side hysteria which no longer seems to be in touch with the actual economy. In other words, giving tax cuts to the wealthy when they are awash in unprecedented levels of cash is not likely to revive the purchasing power of our Walmart wage-and-benefit system. Meaning: companies will not have the incentive to invest and add jobs until their consumers come back, which will never happen if our incentive system for growing the economy keeps driving down wages.

Again, I don't know what the solution is, but it's hard to discuss living wages with people whose understanding of the economy is a talk radio cliche.

You raise some valid points. I'm not sure I agree with the claim that Reaganomics caused the consumer debt explosion but I think you're correct on when that explosion happened as well as the vast destruction it has wrought on the middle class. Pure supply side policies won't work either, you're correct on that one too.

In my opinion the problem is that there has been a fundamental shift in the expectations and financial literacy of the middle class. Cars are no longer bought based on the price of the car, they are bought based on the monthly payment. Houses are no longer considered homes with fixed affordable costs, they are considered investments of a special type that "never" decrease in value. Building wealth and saving for the future at almost all levels used to be the norm, now it's rare.

We're even at the point where McDonald's is considered "cheap," and policymakers actually talk about healthy home cooking being "too expensive" for the working class. It's mind boggling to me. I am upper middle class and even I know McDonald's is more expensive than home cooking.

People generally just do not know how to budget and they have no concept of living within one's means anymore. $50K per year, two kids, two car payments, and vacations on credit cards will never get you ahead. That starts a snowball of deferred interest obligations that end up being more than the price of the stuff you bought. Anecdotally I saw this a great deal with my health insurance practice. At a regional NAHU conference this Spring there were multiple workshops on identifying the typical customer for certain products, and in every one of them the conversations drifted to how much money the subsidized crowd wastes and how much better off they'd be if they only managed what they had better. Sometimes the conversations led to upper middle class people and the vast numbers of them living two paychecks from bankruptcy too.

I don't have a solution either, but pandering to someone and blaming the rich for the holes they are digging doesn't work. Turning the social safety net into a hammock doesn't work. Increasing financial literacy is a good start. At least it would break the cycle of poor people doing the same things that made their predecessors poor. Maybe then we as a society can have a productive dialog on where to go from here.

 

[RKMBrown]

So what... let's hand out 5million SS cards to illegals, apparently American's don't want jobs.

 

[asterism]

Speaking of upper middle class folks being financially illiterate:

My wife has a 2nd cousin (or 3rd cousin, I lose track) who is a partner at a law firm. She makes about $250K per year with a generous benefit package. She has never balanced a checkbook, ever. Humanities degree from Yale, J.D. from Dartmouth (parents paid but she did get a perfect SAT score and graduated high school with a 4.3 GPA so without the pediatrician father she still would have attended the finest colleges) and an amazing set of skills in labor law, but she has zero financial ability.

She threatened a lawsuit against her CPA alleging theft because there was no way she was $1 Million in debt - as in her current net worth is negative one million dollars. The CPA called her boss and her father to lay it all out before getting confrontational and suing for libel and slander. Her father and boss agreed, she really did spend all that money and was living beyond her means. She said she didn't realize that when she refinanced a new car that the owed balance on the old car minus the value given for the trade-in. She said she didn't realize that the bank statements were just ledgers of cash flow moving through the account and the bank did not track payments made, just payments that had cleared. She actually thought that since her bank account and credit card were from the same bank that the bank was paying the credit card balances off because "they were taking money out every month" when it was just an auto-pay feature where the minimum payment is taken out every month to avoid late charges. She has lived for almost 15 years in this way and now thinks "Wall Street" is to blame because her investments won't cover her debts. She also said that she doesn't make enough to survive and blamed the senior partner.

This very smart and talented lady was never educated in how to manage money. She managed cash flow just fine, and that's all she concentrated on doing. She made some fundamental assumptions about her house and investments so she didn't worry much about her debt because she always assumed that she could just sell her house and cash in her portfolio. Her assumptions turned out to be wrong. Her house is worth less than what she bought it for 10 years ago. As it turns out, Zillow valuations aren't accurate when you need to sell your house now. Her net gain on her investments is negative because she started taking bigger risks in 2007 stopped looking at her statements in 2008 because it was "too stressful." Literally, this lady had not looked at her investment statements in 6 years. She assumed that because she heard about the stock market doubling that her portfolio had doubled too. She was correct that her portfolio had doubled since 2009, but it was much lower in 2009 than it was in 2008 when she last looked at her quarterly statements.

I bring this up because this is a case of obvious entitlement mentality by someone who was born on third base and now thinks she's owed the benefit of sliding into home. But in her case, she's got more going for her than most because of her knowledge and ability to work hard. As I explained to her, $1 Million in debt for her is like $50K in debt for a middle class family. It'll take a few years of scrimping, but she can get back to a very affluent lifestyle by the time she's 45 and she'll be wealthy at 50 if she moderates her spending. A middle class family cannot borrow, spend, invest, lose, and recover like that because a middle class family cannot live on 20% of their income like she can.

So why does a middle class family have that much debt and why do they keep borrowing more? I'm not talking about catastrophic health issues or black swan investments, I'm talking about a Starbucks barista with an iPhone 6 and a new Prius, a nurse that spends $130 per week on her nails to go with her weekly shoe purchase, the Whole Foods manager that shops at Whole Foods, and the Ford assembly worker that bought a new F-150 King Ranch pickup. They have dug themselves a deeper relative hole and feel entitled to rely on someone else to get them out. They were born on first base and expect to make it to third, but they keep doing it the wrong way.

Financial literacy would be a huge move forward. Instead of policies that pander, polices need to enable. But none of it works if people still spend money like idiots and expect to be bailed out.

 

[asterism]

This is not to say that we can return to the demand-centered policies of the postwar years, when economic growth was well above where it has been over the last three decades,

I don't believe we will ever again have the large numbers of citizens with good disposable incomes like we had in the not to distant past. The jobs that earned that good income are gone. And are not coming back in numbers great enough to make a difference.

Lets say we are moving away from the idea of people being able to move up in "class" through hard work alone; ie from lower to middle to upper middle to affluent to rich to very rich. Lets say we are going to a society of the have and the have nots.

The have nots will be counted on to purchase basic living necessities but will not be much of a contributor to growth in the discretionary spending markets. Their new TV will come from Craigslist or Goodwill or a friend with a good job selling his old stuff.

The future does not look too bright for those without the advantage of education and contacts. Who you know has never been more important than it is today. Relationships with other successful people will be paramount.

If you are poor, un educated, lacking good skills in math and reading (which is millions of people) then you are fucked for your lifetime. Survival will be what you concentrate on.

And we will have a hard time growing like we used to. IMO.

More excellent valid points, but probably not the ones you think:

1. Education - so much of the generic "education" is not financially productive. A graduate degree in "Educational Technology" is a bad financial investment usually. Yes the teacher who as one (like my sister) makes more, but it's a wash when the cost to get that degree plus the interest on the student loan is considered. She would have been better off waiting tables during the time it took to obtain that MA instead of now waiting tables to pay off the loan and pre-spending the raise she anticipated. Ditto for the doctorate she never obtained (family issues prevented her from competing her thesis so she's got a post-graduate certificate). Another sister of mine has an MBA that her company paid for. She is now learning that her MBA didn't teach her how to run a business, it taught her how to be a productive middle management employee in a large company. 10 years later, that doesn't help for advancement. Then there's all the "follow your heart" purists that counseled kids into pursuing esoteric and expensive degrees in history and "general business" without any regard for actual career paths. Most of those people would have been better off learning a skill because when almost everyone has a bachelor's, your bachelor's just gets your foot in the door to an interview. If your skills don't line up with what the employer needs, you won't get the job.

This was true for computer science majors in the early 2000s too. If you could write some extremely tight C++, you might get hired as a trainee in a java shop. If your computer science "education" was theory, algorithms, scheme, fortran, html and fortran, you'd be passed over.

2. The consumer economy: I think this was a bad idea and if it was architected it was especially stupid. It's unsustainable. Give more money to people so that they can spend more money and that creates prosperity? No. It doesn't. It creates a temporary condition of euphoria and living for now because the future is going to take care of itself (because that's how it worked for the previous generation).

3. The survival economy: That's actually not too bad, it's more in line with the good ideals of the pure free market as long as it's an efficient market. A readjustment of expectations wouldn't be terrible. I've had 15 cars in my lifetime and all but two were used. While I believe in choice and freedom, I think it's stupid that we have a system that encourages someone my age who has always made about a third of what I have made to have never bought a used car, ever. Of course now this guy realizes that he's just been kicking the can down the road and he doesn't qualify for financing on the new Passat he wants. He's been paying about the same $300 per month for 20 years and he's been upgrading every few years. Depreciation is a bitch. Of course this guy says I'm lucky enough to afford a 2007 BMW because I'm "rich." The Passat he wants is about $30,000. That's what I paid for my used BMW. Yeah, I never get to drive around in a flashy new car that nobody has ever seen, but I like my 07 328. It's fun and affordable. I never thought about buying a $30,000 car when I was making what this guy is making. He's stuck in a cycle of perpetual car payments because he doesn't think he should downgrade. I'm probably going to deliberately downgrade because I have to get serious about retirement now that it's 20 years away.

So the survival economy would be good in that instance.

3.5: The survival economy: Survival is an excellent motivator. One of the reasons so many professionals are bad at finance is because they've been enabled to kick the can down the road for so long. Houses are not financial investments for middle class consumers. Putting vacations and Christmas on credit cards because you can't afford to pay cash for them is bad for the economy (both yours and the nation), and buying a car equal to your yearly take home pay is just stupid. All of these things are common, and in many circles it's said that the reason this happens is because of income inequality.

No, it's financial literacy inequality. I don't want sweeping government power that prevents a middle class person from borrowing a whole lot of money for what they want. But I also don't want a system that encourages them to do so and then allows them the excuse that their potential future earnings were stolen from them due to some trade deal and that if they vote for this person he's going to fix things and make it all work out - and if it doesn't well they'll be fine because here's some assistance because we're "compassionate" and if we just tax the rich folks some more they'll get their promise of prosperity.

It's clear that those with serious financial means have been adept at surviving. Maybe it's time to stop trying to build ourselves up by tearing them down and instead increase financial liberty all around. Don't worry, the rich will pay because their pampered children won't be as hungry as the poor capitalist trying to start the next Broadcast.com. But convincing young people that they don't have a chance and locking them into the entitlement mentality is unsustainable.

4. The future without education and contacts: The Internet is the great equalizer. You don't have to compete with Google or eBay, they are focused on markets a single person can't reach. They are large organizations with large bureaucracies, which means they leave lots of meat on the bone. While an education is still generally a good idea, one does not need a college degree and a set of contacts to prosper. All one needs is an idea the drive to figure out how to reach customers. Facebook, eBay, and Google are excellent conduits - way better than the old Yellow Pages and Chamber of Commerce routes. So many functions that were expensive before are now actually quite cheap. It used to be a big deal to be able to accept credit cards at a business and now anyone with a bank account can do it with a smartphone and paypal. Getting exposure to 1000 people in your town used to be impossible because without a $20,000 budget nobody would make a video and put it on the local TV station for you but now it's possible for cheap using youtube and facebook.

Economists say that most of the new Internet companies are going to follow the same path as the early car manufacturers. In the early 1900s there were over 2000 car manufacturers in Detroit. By the 1930s there were only 10. But the difference now is that things are so much more efficient, anyone can be a business owner and they don't have to take risks that they can't afford. You don't have to invest in huge expensive machines that turn steel into parts which are then assembled into cars. All you need is an a idea and a website.

Maybe this is just a situation where the guarantees decline but the potential increases. That's the problem with the 1950s union tract, it was limited. One could be a great worker and be a senior foreman at 50 doing well, but that was the end of the potential. He was guaranteed a "good" wage and a "good" retirement, but he never got to start his own company. Yay for the guys who never wanted to do that, but it sucked a whole lot for the guys who did but were locked out. Those conditions don't exist anymore. You don't have to be friends with a banker so that he can "take a chance on you" and put you in front of some suits so that they can decide if you get a loan for your new business. Now you have other options - crowdfunding, home equity loans, enterprise encouragement organizations, etc. Plus it's way way cheaper to start a company now than it was back then.

 

[asterism]

This is not to say that we can return to the demand-centered policies of the postwar years, when economic growth was well above where it has been over the last three decades,

I don't believe we will ever again have the large numbers of citizens with good disposable incomes like we had in the not to distant past. The jobs that earned that good income are gone. And are not coming back in numbers great enough to make a difference.

Lets say we are moving away from the idea of people being able to move up in "class" through hard work alone; ie from lower to middle to upper middle to affluent to rich to very rich. Lets say we are going to a society of the have and the have nots.

The have nots will be counted on to purchase basic living necessities but will not be much of a contributor to growth in the discretionary spending markets. Their new TV will come from Craigslist or Goodwill or a friend with a good job selling his old stuff.

The future does not look too bright for those without the advantage of education and contacts. Who you know has never been more important than it is today. Relationships with other successful people will be paramount.

If you are poor, un educated, lacking good skills in math and reading (which is millions of people) then you are fucked for your lifetime. Survival will be what you concentrate on.

And we will have a hard time growing like we used to. IMO.

America needs to read what you just posted and understand something... We can either throw up our hands and give up on the American way of life, or we can roll up our sleeves, re-invigorate the free market capitalist system which made America great for 200+ years, and create more economic prosperity than we know what to do with by promoting free market capitalism as opposed to trying to destroy it. It's entirely up to US!

You've just given THE best reason in the world for why Americans need to stop voting for you people, stop listening to your Marxist crap, and give people a chance who know something about business and economics. It's not time to give up, have a pity party and bury the American Dream. It's time to marginalize the Occutards and Socialists, get rid of the "1% vs. 99%" crowd, and start rebuilding American economic prosperity. That begins with cutting government spending and decreasing our debt and deficits. It also involves encouraging (not discouraging) the wealthy to use their wealth to create opportunity and jobs. It also involves securing our borders and sending illegal aliens back where they belong so that average Americans have more jobs and resources available. Finally, it includes getting rid of Obamacare, the Department of Education, EPA and IRS.

I disagree. It starts by getting finance back into the mainstream of basic education. Only then where there be a public demand to stop the unsustainable model being used by both parties alternating control of government.

I'm not talking about high finance and leveraging existing puts to offset future calls, I mean basic finance. Balance a checkbook, set a budget, know how much you can afford to spend while saving for retirement, and how much money you need to provide for that retirement. Basic stuff my grandparents knew in the 8th grade.

 

[RKMBrown]

Speaking of upper middle class folks being financially illiterate:

My wife has a 2nd cousin (or 3rd cousin, I lose track) who is a partner at a law firm. She makes about $250K per year with a generous benefit package. She has never balanced a checkbook, ever. Humanities degree from Yale, J.D. from Dartmouth (parents paid but she did get a perfect SAT score and graduated high school with a 4.3 GPA so without the pediatrician father she still would have attended the finest colleges) and an amazing set of skills in labor law, but she has zero financial ability.

She threatened a lawsuit against her CPA alleging theft because there was no way she was $1 Million in debt - as in her current net worth is negative one million dollars. The CPA called her boss and her father to lay it all out before getting confrontational and suing for libel and slander. Her father and boss agreed, she really did spend all that money and was living beyond her means. She said she didn't realize that when she refinanced a new car that the owed balance on the old car minus the value given for the trade-in. She said she didn't realize that the bank statements were just ledgers of cash flow moving through the account and the bank did not track payments made, just payments that had cleared. She actually thought that since her bank account and credit card were from the same bank that the bank was paying the credit card balances off because "they were taking money out every month" when it was just an auto-pay feature where the minimum payment is taken out every month to avoid late charges. She has lived for almost 15 years in this way and now thinks "Wall Street" is to blame because her investments won't cover her debts. She also said that she doesn't make enough to survive and blamed the senior partner.

This very smart and talented lady was never educated in how to manage money. She managed cash flow just fine, and that's all she concentrated on doing. She made some fundamental assumptions about her house and investments so she didn't worry much about her debt because she always assumed that she could just sell her house and cash in her portfolio. Her assumptions turned out to be wrong. Her house is worth less than what she bought it for 10 years ago. As it turns out, Zillow valuations aren't accurate when you need to sell your house now. Her net gain on her investments is negative because she started taking bigger risks in 2007 stopped looking at her statements in 2008 because it was "too stressful." Literally, this lady had not looked at her investment statements in 6 years. She assumed that because she heard about the stock market doubling that her portfolio had doubled too. She was correct that her portfolio had doubled since 2009, but it was much lower in 2009 than it was in 2008 when she last looked at her quarterly statements.

I bring this up because this is a case of obvious entitlement mentality by someone who was born on third base and now thinks she's owed the benefit of sliding into home. But in her case, she's got more going for her than most because of her knowledge and ability to work hard. As I explained to her, $1 Million in debt for her is like $50K in debt for a middle class family. It'll take a few years of scrimping, but she can get back to a very affluent lifestyle by the time she's 45 and she'll be wealthy at 50 if she moderates her spending. A middle class family cannot borrow, spend, invest, lose, and recover like that because a middle class family cannot live on 20% of their income like she can.

So why does a middle class family have that much debt and why do they keep borrowing more? I'm not talking about catastrophic health issues or black swan investments, I'm talking about a Starbucks barista with an iPhone 6 and a new Prius, a nurse that spends $130 per week on her nails to go with her weekly shoe purchase, the Whole Foods manager that shops at Whole Foods, and the Ford assembly worker that bought a new F-150 King Ranch pickup. They have dug themselves a deeper relative hole and feel entitled to rely on someone else to get them out. They were born on first base and expect to make it to third, but they keep doing it the wrong way.

Financial literacy would be a huge move forward. Instead of policies that pander, polices need to enable. But none of it works if people still spend money like idiots and expect to be bailed out.

Yeah well 250k is right in the middle of the evil rich. People who don't have a lot of money coming from investments and it's all payroll.. yeah they end up paying the highest tax rates in the country... AMT yeah we got that... tax breaks? no you don't get those you are too rich. She probably bought too much house and is paying through the nose for realestate taxes. I'll bet she lives in one of "those" cities where the evil rich have run up the prices of the homes to ridiculous amounts.. Like boston.

I'll bet she pays almost half of her income in taxes...

 

[Boss]

I disagree. It starts by getting finance back into the mainstream of basic education. Only then where there be a public demand to stop the unsustainable model being used by both parties alternating control of government.

I'm not talking about high finance and leveraging existing puts to offset future calls, I mean basic finance. Balance a checkbook, set a budget, know how much you can afford to spend while saving for retirement, and how much money you need to provide for that retirement. Basic stuff my grandparents knew in the 8th grade.

You make a very relevant and valid point sir, and I don't disagree. Previously in this thread, to the question of "what is an acceptable living wage?" I answered $0. I'm sure my point went right over the head of progressives, but there are people who literally live their lives on $0 in wages. They trade and barter their goods and services with others in their community. They don't drive cars or have electricity, or any other modern convenience we've come to expect, but they don't starve to death and they raise families, and are debt free.

I've been my own boss for my entire adult life (I'm 55), I've never had a "wage" living, minimum or otherwise. I have earned my wealth through my own entrepreneurial acumen. I raised a family (3 daughters) and they went to college, had a decent upbringing, never went to bed hungry and always had a roof over their head and warm bed at night.

In another thread, I mentioned the first key to becoming wealthy was learning to live debt free. Someone tried to argue how it's sometimes smarter to finance than to pay cash... it's NEVER smarter or better. It might appear that way sometimes with attractive 0% finance rates, but this never factors in what you could have negotiated in a cash transaction and how much could have been saved. But you are absolutely correct, far too many people are financially illiterate.

 

[zeke]

No, you are wrong. Gains in interest from my investment are taxed as capital gains. Once the asset is cashed in, it becomes taxable income at the 39.6% tax rate, unless I incorporate and transfer it to my corporate account, then it would be subject to the 25% corporate tax rate.

You are a liar dude. You claimed you were invested in tax free municipal bonds. Fucking just link up the google site PROVING what you claim or shut the fuck up.

 

[asterism]

Speaking of upper middle class folks being financially illiterate:

My wife has a 2nd cousin (or 3rd cousin, I lose track) who is a partner at a law firm. She makes about $250K per year with a generous benefit package. She has never balanced a checkbook, ever. Humanities degree from Yale, J.D. from Dartmouth (parents paid but she did get a perfect SAT score and graduated high school with a 4.3 GPA so without the pediatrician father she still would have attended the finest colleges) and an amazing set of skills in labor law, but she has zero financial ability.

She threatened a lawsuit against her CPA alleging theft because there was no way she was $1 Million in debt - as in her current net worth is negative one million dollars. The CPA called her boss and her father to lay it all out before getting confrontational and suing for libel and slander. Her father and boss agreed, she really did spend all that money and was living beyond her means. She said she didn't realize that when she refinanced a new car that the owed balance on the old car minus the value given for the trade-in. She said she didn't realize that the bank statements were just ledgers of cash flow moving through the account and the bank did not track payments made, just payments that had cleared. She actually thought that since her bank account and credit card were from the same bank that the bank was paying the credit card balances off because "they were taking money out every month" when it was just an auto-pay feature where the minimum payment is taken out every month to avoid late charges. She has lived for almost 15 years in this way and now thinks "Wall Street" is to blame because her investments won't cover her debts. She also said that she doesn't make enough to survive and blamed the senior partner.

This very smart and talented lady was never educated in how to manage money. She managed cash flow just fine, and that's all she concentrated on doing. She made some fundamental assumptions about her house and investments so she didn't worry much about her debt because she always assumed that she could just sell her house and cash in her portfolio. Her assumptions turned out to be wrong. Her house is worth less than what she bought it for 10 years ago. As it turns out, Zillow valuations aren't accurate when you need to sell your house now. Her net gain on her investments is negative because she started taking bigger risks in 2007 stopped looking at her statements in 2008 because it was "too stressful." Literally, this lady had not looked at her investment statements in 6 years. She assumed that because she heard about the stock market doubling that her portfolio had doubled too. She was correct that her portfolio had doubled since 2009, but it was much lower in 2009 than it was in 2008 when she last looked at her quarterly statements.

I bring this up because this is a case of obvious entitlement mentality by someone who was born on third base and now thinks she's owed the benefit of sliding into home. But in her case, she's got more going for her than most because of her knowledge and ability to work hard. As I explained to her, $1 Million in debt for her is like $50K in debt for a middle class family. It'll take a few years of scrimping, but she can get back to a very affluent lifestyle by the time she's 45 and she'll be wealthy at 50 if she moderates her spending. A middle class family cannot borrow, spend, invest, lose, and recover like that because a middle class family cannot live on 20% of their income like she can.

So why does a middle class family have that much debt and why do they keep borrowing more? I'm not talking about catastrophic health issues or black swan investments, I'm talking about a Starbucks barista with an iPhone 6 and a new Prius, a nurse that spends $130 per week on her nails to go with her weekly shoe purchase, the Whole Foods manager that shops at Whole Foods, and the Ford assembly worker that bought a new F-150 King Ranch pickup. They have dug themselves a deeper relative hole and feel entitled to rely on someone else to get them out. They were born on first base and expect to make it to third, but they keep doing it the wrong way.

Financial literacy would be a huge move forward. Instead of policies that pander, polices need to enable. But none of it works if people still spend money like idiots and expect to be bailed out.

Yeah well 250k is right in the middle of the evil rich. People who don't have a lot of money coming from investments and it's all payroll.. yeah they end up paying the highest tax rates in the country... AMT yeah we got that... tax breaks? no you don't get those you are too rich. She probably bought too much house and is paying through the nose for realestate taxes. I'll bet she lives in one of "those" cities where the evil rich have run up the prices of the homes to ridiculous amounts.. Like boston.

I'll bet she pays almost half of her income in taxes...

Ding ding! Boston it is!

 

[RKMBrown]

Speaking of upper middle class folks being financially illiterate:

My wife has a 2nd cousin (or 3rd cousin, I lose track) who is a partner at a law firm. She makes about $250K per year with a generous benefit package. She has never balanced a checkbook, ever. Humanities degree from Yale, J.D. from Dartmouth (parents paid but she did get a perfect SAT score and graduated high school with a 4.3 GPA so without the pediatrician father she still would have attended the finest colleges) and an amazing set of skills in labor law, but she has zero financial ability.

She threatened a lawsuit against her CPA alleging theft because there was no way she was $1 Million in debt - as in her current net worth is negative one million dollars. The CPA called her boss and her father to lay it all out before getting confrontational and suing for libel and slander. Her father and boss agreed, she really did spend all that money and was living beyond her means. She said she didn't realize that when she refinanced a new car that the owed balance on the old car minus the value given for the trade-in. She said she didn't realize that the bank statements were just ledgers of cash flow moving through the account and the bank did not track payments made, just payments that had cleared. She actually thought that since her bank account and credit card were from the same bank that the bank was paying the credit card balances off because "they were taking money out every month" when it was just an auto-pay feature where the minimum payment is taken out every month to avoid late charges. She has lived for almost 15 years in this way and now thinks "Wall Street" is to blame because her investments won't cover her debts. She also said that she doesn't make enough to survive and blamed the senior partner.

This very smart and talented lady was never educated in how to manage money. She managed cash flow just fine, and that's all she concentrated on doing. She made some fundamental assumptions about her house and investments so she didn't worry much about her debt because she always assumed that she could just sell her house and cash in her portfolio. Her assumptions turned out to be wrong. Her house is worth less than what she bought it for 10 years ago. As it turns out, Zillow valuations aren't accurate when you need to sell your house now. Her net gain on her investments is negative because she started taking bigger risks in 2007 stopped looking at her statements in 2008 because it was "too stressful." Literally, this lady had not looked at her investment statements in 6 years. She assumed that because she heard about the stock market doubling that her portfolio had doubled too. She was correct that her portfolio had doubled since 2009, but it was much lower in 2009 than it was in 2008 when she last looked at her quarterly statements.

I bring this up because this is a case of obvious entitlement mentality by someone who was born on third base and now thinks she's owed the benefit of sliding into home. But in her case, she's got more going for her than most because of her knowledge and ability to work hard. As I explained to her, $1 Million in debt for her is like $50K in debt for a middle class family. It'll take a few years of scrimping, but she can get back to a very affluent lifestyle by the time she's 45 and she'll be wealthy at 50 if she moderates her spending. A middle class family cannot borrow, spend, invest, lose, and recover like that because a middle class family cannot live on 20% of their income like she can.

So why does a middle class family have that much debt and why do they keep borrowing more? I'm not talking about catastrophic health issues or black swan investments, I'm talking about a Starbucks barista with an iPhone 6 and a new Prius, a nurse that spends $130 per week on her nails to go with her weekly shoe purchase, the Whole Foods manager that shops at Whole Foods, and the Ford assembly worker that bought a new F-150 King Ranch pickup. They have dug themselves a deeper relative hole and feel entitled to rely on someone else to get them out. They were born on first base and expect to make it to third, but they keep doing it the wrong way.

Financial literacy would be a huge move forward. Instead of policies that pander, polices need to enable. But none of it works if people still spend money like idiots and expect to be bailed out.

Yeah well 250k is right in the middle of the evil rich. People who don't have a lot of money coming from investments and it's all payroll.. yeah they end up paying the highest tax rates in the country... AMT yeah we got that... tax breaks? no you don't get those you are too rich. She probably bought too much house and is paying through the nose for realestate taxes. I'll bet she lives in one of "those" cities where the evil rich have run up the prices of the homes to ridiculous amounts.. Like boston.

I'll bet she pays almost half of her income in taxes...

Ding ding! Boston it is!

was it? lol I was just guessing.

 

[Jarlaxle]

Yes, if only the Slaves would just shut up and be happy obedient Slaves. Everything would be just great.

Well, guess what? The Slaves aren't happy being Slaves. And their only getting angrier. There is no such thing as a 'Happy Slave.' It ain't gonna happen. People are just gonna have to accept that reality. These problems have to be addressed. The American Worker has been getting the short end of the stick for many years. It's time to reverse that trend. They're our fellow Americans. They should be treated better. Period, end of story.

Please stop reposting the same copy-pasted bullshit.

 

[Jarlaxle]

I disagree. It starts by getting finance back into the mainstream of basic education. Only then where there be a public demand to stop the unsustainable model being used by both parties alternating control of government.

I'm not talking about high finance and leveraging existing puts to offset future calls, I mean basic finance. Balance a checkbook, set a budget, know how much you can afford to spend while saving for retirement, and how much money you need to provide for that retirement. Basic stuff my grandparents knew in the 8th grade.

You make a very relevant and valid point sir, and I don't disagree. Previously in this thread, to the question of "what is an acceptable living wage?" I answered $0. I'm sure my point went right over the head of progressives, but there are people who literally live their lives on $0 in wages. They trade and barter their goods and services with others in their community. They don't drive cars or have electricity, or any other modern convenience we've come to expect, but they don't starve to death and they raise families, and are debt free.

I've been my own boss for my entire adult life (I'm 55), I've never had a "wage" living, minimum or otherwise. I have earned my wealth through my own entrepreneurial acumen. I raised a family (3 daughters) and they went to college, had a decent upbringing, never went to bed hungry and always had a roof over their head and warm bed at night.

In another thread, I mentioned the first key to becoming wealthy was learning to live debt free. Someone tried to argue how it's sometimes smarter to finance than to pay cash... it's NEVER smarter or better. It might appear that way sometimes with attractive 0% finance rates, but this never factors in what you could have negotiated in a cash transaction and how much could have been saved. But you are absolutely correct, far too many people are financially illiterate.

My stepfather financed the Chrysler 300 he just bought. Quite simply, paying cash would have been stupid! (The interest rate on the loan is 1%.)

 

[Boss]

No, you are wrong. Gains in interest from my investment are taxed as capital gains. Once the asset is cashed in, it becomes taxable income at the 39.6% tax rate, unless I incorporate and transfer it to my corporate account, then it would be subject to the 25% corporate tax rate.

You are a liar dude. You claimed you were invested in tax free municipal bonds. Fucking just link up the google site PROVING what you claim or shut the fuck up.

You are in luck, asshat... today is a slow day, so have decided to respond to your fucktardedness...

Municipal bond - Wikipedia the free encyclopedia

One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Bonds issued for certain purposes are subject to the alternative minimum tax.

The type of project or projects that are funded by a bond affects the taxability of income received on the bonds held by bond holders. Interest earnings on bonds that fund projects that are constructed for the public good are generally exempt from federal income tax, while interest earnings on bonds issued to fund projects partly or wholly benefiting only private parties, sometimes referred to as private activity bonds, may be subject to federal income tax. However, qualified private activity bonds, whether issued by a governmental unit or private entity, are exempt from federal taxes because the bonds are financing services or facilities that, while meeting the private activity tests, are needed by a government.

Purchasers of municipal bonds should be aware that not all municipal bonds are tax-exempt, and not all tax-exempt bonds are exempt from all federal and state taxes. The laws governing the taxability of municipal bond income are complex. At the federal level they are contained in the IRS Code, (Sections 103, 141-150), and rules promulgated thereunder. Each state will have its own laws governing what bonds, if any, are exempt from state taxes. For publicly offered bonds and most private placements, at the time of issuance a legal opinion will be provided indicating that the bonds are tax-exempt. Offering documents, such as an official statement or placement memorandum, will contain further information regarding tax treatment of interest on the bonds. Investors should be aware that there are also post-issuance compliance requirements that must be met to ensure that the bonds remain tax-exempt. The IRS has a specific section of their website, Internal Revenue Service devoted to tax exempt bonds and compliance with federal requirements.

Now, in my particular example, you will recall that I said I was taking my $1 million out of municipal bonds to start a business. This means I am selling the bonds to someone else and will no longer own them. This is not a capital gain, although I understand your confusion.

Capital gain - Wikipedia the free encyclopedia

A capital gain is a profit that results from a disposition of a capital asset, such as stock, bond or real estate, where the amount realized on the disposition exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price.

So the capital gains tax only applies to the portion of profit I realize from the sale of my asset. The remainder is considered "unearned income" and subject to the regular tax rate. As I stated, there are some ways of avoiding the normal tax rates, like incorporation and income averaging or alternative minimum tax. BUT AGAIN.... This has nothing to do with the fact that IF my choice is to leave the money where it's at, there is no tax liability and no risk. So your nit-picking this minor detail doesn't take a thing in the world away from my example. It is still considerably more advantageous for me to leave my money where it is and not cash in my tax-free bonds.

Now... What WAS your point again? Oh yeah... It was to find some trivial detail where you could point your grubby little finger at me and call me a liar over. A diversion and distraction from the example I presented as to why I don't use my wealth to invigorate more free market capitalism.... and argument where you were totally schooled. Class is dismissed!

 

[Boss]

My stepfather financed the Chrysler 300 he just bought. Quite simply, paying cash would have been stupid! (The interest rate on the loan is 1%.)

No, because you are failing to consider what price your stepfather MAY have been able to negotiate with a cash transaction. You are ASSUMING the price would have been the same either way, and that is simply not so.

 

[Jarlaxle]

He got the car for $100 over invoice. Tough to go much lower than that.

 

[Boss]

He got the car for $100 over invoice. Tough to go much lower than that.

I've bought cars for $3000 below invoice by paying cash. Invoice price to the dealer doesn't really mean anything because the dealer gets a manufacturer rebate for every car he sells. On a cash transaction, the dealer saves money because he doesn't have to carry the financing. There is no commission to pay the loan manager, which can be a significant savings. Of course, most of these costs are figured into the loan paperwork after negotiation of the "$100 over invoice" figure is reached.

 

[Jarlaxle]

*facepalm*

God and goddess...dealers WANT you to finance! Dealers MAKE MONEY ON FINANCING!

He got EXACTLY the same price he would have had he paid cash, to the penny!

(And if you bought a care for $3K below invoice, it was a white elephant that the dealer just wanted to unload at any price.)

 

[Boss]

*facepalm*

God and goddess...dealers WANT you to finance! Dealers MAKE MONEY ON FINANCING!

He got EXACTLY the same price he would have had he paid cash, to the penny!

(And if you bought a care for $3K below invoice, it was a white elephant that the dealer just wanted to unload at any price.)

Well of course dealers make money on financing, why do you think they use gimmicks like 1% rates? What you need to ask yourself is.... WHERE does that money ultimately come from? Magic Money Fairy???

I guarantee you he did not get the EXACT same price as he could have gotten if he took fat stacks of cash to the dealership and negotiated a cash transaction. I'm sure that he thinks so, and it's obvious you believe he did, but I beg to differ.