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What's the Real Worth of a Dollar?

October 9th, 2007 at 05:50 pm

Most people take for granted that when they earn a dollar, they have most of that dollar to spend (most people do consider that they've lost some of it to taxes).

But how much of a dollar do we really have to spend?

1. 40 cents of every dollar gets eaten up in taxes (federal, state, medicare, local, gasoline, sales, property, etc.)

2. 30 cents goes to debt interest on cars, homes, credit cards, etc.

3. 6 percent goes to inflation (an old figure now since inflation is on the rise).

What does that leave? 24 cents of every dollar that you actually have to use at your own discretion. And people wonder why they have a tough time saving...

4 Responses to “What's the Real Worth of a Dollar?”

  1. Brooklyn girl Says:

    1) Max out your 401K, and pay less taxes on that money.

    2) Don't get into debt. We paid cash for our car, have no cc debt, and are still not sure if buying a house is automatically the greatest idea right now.

    3) Very few options there - either career growth or investing well.

    I agree that taxes for middle class are to high. The rich have many creative ways around them, but middle class wage-earners bear the brunt.

  2. kinchan Says:

    Brooklyn girl: Good comments, especially about not getting into debt...that's the best way to add another 30 cents to your 24 cents and at least have half a dollar to spend. As for maxing out the 401(k), you're going to be paying the ultimate price in taxes when you go to withdraw it. It's tax-deferred, not tax-free and you're paying on the seed AND the crop! A big rip off in my opinon. A Roth IRA might be a better way to save taxes. You pay tax now on the "seed" but not any taxes on whatever "crop" you make later...a better deal in my estimation.

  3. Broken Arrow Says:

    Yeah, it's tough to save, but what you have listed makes it all the more reason to save. Better to have not enough than none at all.

  4. Brooklyn girl Says:

    I disagree about 401K. They reduce your taxes now, and the money you save has a long time to grow.

    Depending on income, you may be in a lower tax bracket when you are withdrawing it after retirement. You don't need to withdraw it in one lump sum, you can schedule mandatory distributions carefully.

    We both max out Roth as well.
    investing in mutual funds using dollar cost everaging is not that risky.

    I used to use risk factor as an excuse not to save, but at some point I understood that I had to change my approach or would never get ahead.

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