<p>“Yes. Parents owe their children a better life than they had.” No. OP - your attitude is why I never wanted my kids to shoot for Ivies. The idea that you have to go to an Ivy League school to be a leader or live a very very successful life I find highly obnoxious. No wonder our country is in financial trouble. If the Ivies are feeding the financial institutions with kids with this type of attitude we are in big trouble indeed.</p>
<p>Look - there is such a thing as Good Government. Government that invests in things that private companies will not (roads bridges highway safety, schools for middle class and poor kids and smart upper class people who recognize that lots of/majority of learning happens at home, military and high risk advanced research, environmental protection, public health, farm controls and more). It is simply ridiculous for the “smartest” kids at the best universities in the nation to be taughtl that taxes are evil and that one needs a half a million bucks or more annually to be successful. If that attitude prevails at the Ivies then keep my kids away and I fear for our country.</p>
<p>A wise man once said that taxes beyond what is absolutely necessary is legalized robbery. Lol btw, most people at top universities are actually super liberal and wave their fists for more taxes to “help the American people.” Do not be alarmed; this attitude will change once they receive their first paycheck and wonder who the hell is FICA.</p>
<p>@Turbo. Let me do some calculations for you.</p>
<p>Assume $250k income. You will owe IN AGGREGATE:
$65,513 in Federal taxes. (taken from H&R tax calc)
You will owe between $12,500 to $25,000 in state taxes. (5-10%)
Assume a $1 million dollar mortgage on a 30 year mortgage. 4X income is not uncommon amount for mortgage. You are looking at a $15,000 to $20,000 real estate tax. (1.3-1.8% of on a $1.2mil house)
Consider Social security tax: You pay $18750 in your share, your employer pays $18500. IN THE ABSENCE of this tax, your income would be increased by $37500. We take this to be a 15% tax on your income because employers pass this cost on to employees.
Sales tax is variable but most state have it 10%. A family earning $250k will buy what, $60,000 in new merchandise? This is $6000.</p>
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<li>Itemized Deductions: $45k interest deduction, $2k child credit. 18k deduction for state tax. Account with caution: this deduction is only possible by taking on $1 million in debt and around $80,000 in home payments a year, $45,000 of which services interest.</li>
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<p>Total: (65k +18k + 17.5k + 37.5k + 6k) = 144k taxes
45k * (33% the personal tax rate at which we are dealing with) = 15k tax deduction credit for interest deduction.
18k * (33%) = 6k tax deduction for state tax.</p>
<p>As we go to 500k to 750k, this number increases. By the way, I did not claim that earning $500k+ is the only way to define success. I simply mention that it is OUR AMBITION. Nothing wrong with smart kids being ambitious.</p>
<p>How so? I doubt they are off by more than 5% in either direction. </p>
<p>If you spot a questionable number, point it out. The only think I am unsure of is the amount of family expenditures. It is probably more like 40k. But whatever, the difference is marginal on the total taxation.</p>
<p>A million dollar home would be pretty hard to find in my town. There are
mansions in the next city over that sell for a million and you could pay
$20K/year in property taxes but you could also just get a very nice four
bedroom fairly recent home for $300K for $6,000 in taxes.</p>
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<p>You get a benefit from this at retirement.</p>
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<p>NH doesn’t have a state sales tax.</p>
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<p>If you’re wealthy, why wouldn’t you just pay cash for your house?</p>
<p>So let’s see: $65K in federal taxes, $6,000 in property taxes, that’s
less than 33%. Think you can make it on $180K a year? Should be a
piece of cake.</p>
<p>BC, a very specific example you provide… In a major metro area, it dosen’'t work as you project… I paid 6k in property taxes over 20 years ago, and my home cost over 300k in 1995</p>
<p>On the issue of housing: It is fairly rare to find people who make $250k living in a 300k house. In America, the general consensus is that we can tell a lot about someone’s socioeconomic status from their home. The pride placed on appropriate housing for the appropriate income should not be underestimated. Walk down the parking lots of private practice clinics and tell me which model cars you see. Then tell me if those models of cars belong to a $300k home.</p>
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<p>My point: Your state does not represent the vast majority of high income individuals. Your exclusion of social security is flawed. You lack an inherent understanding of economic ideas. Wealth DOES NOT EQUAL income. Doctors earn a lot of money. They are poor. Wealth = net worth. I have yet to meet a professional with $1.2 million in liquid assets. I have met some with $250k student loans though. </p>
<p>I am more bothered by your lack of understanding of economic principles than your patronizing tone.</p>
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<li><p>I’m not wealthy…yet. Im a college student. Neither is the example in question. I will take this question as one of passive aggression.</p></li>
<li><p>If I had $1 mil cash, why buy the house when you can invest it for 15%-25% easy? At $1 mil net worth, I become an Accredited Investor and gain access to fantastic investment opportunities that are invisible to 95% of the population. Why settle for 4% (mortgage savings) when I can have 20%? The opportunity cost of paying cash is too great.</p></li>
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<p>I don’t know a lot of people who make 250k a year and have million dollar mortgages - change that - I don’t know anybody and I live in a relatively expensive area.</p>
<p>I drive a 12-year-old car with 227K miles on it and sleep on the
floor. Primary residence is about 8% of net worth. 33% of Americans
own their homes free and clear. 33% rent and the rest have mortgages.</p>
<p>I’m sure that there are lots of others out there that live well below
their means.</p>
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<p>I took finance 30 years ago and am an active trader and investor.</p>
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<p>Rubbish. Or give me a million today and I’ll give you 7% less tomorro.</p>
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<p>Have you ever paid social security taxes? Your statement implies that
you don’t understand how social security contributions work.</p>
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<p>There’s a nice historical chart of the $SPX going back to 1978 at </p>
<p>You can see a nice, steady climb from 1978 to about 1998 where it has
basically stagnated in a trading range since then. Surely you know
that the $SPX has gone nowhere for the last decade.</p>
<p>There’s a nicer chart of the $indu from 1900 to the present and you
can see where the $indu has done nothing for very long periods. If
you bought in 1906 and sold in 1942, you’d have broken even.</p>
<p>Do you know anything about secular, cyclical and short-term markets?
Have you ever had most of your assets in stocks when the market
crashed? Have you ever experienced a short squeeze? Why do they call
it a short squeeze? Because it feels like all of the air is being
squeezed out of your lungs and you can’t breathe.</p>
<p>I’d guess that more people lose in the market than win. Those Wall St
banks, hedge funds and HFTCs - who do you think they take their money
from?</p>
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<p>If they are truly wealthy, then they could just move. Remember Dennis
Koslowski?</p>
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<p>No it isn’t. Yours is.</p>
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<p>Let’s discuss Kondreytiev Cycles.</p>
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<p>You just did.</p>
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<p>Private companies paid for all but one year of my degrees.</p>
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<p>I do quite well with my lack of understanding of economic principles.</p>
<p>But since you’re the expert, what’s your opinion on the effects of K-Waves on the expected 7% annual returns of the $SPX?</p>
<p>The millionaire Next Door made money for the author…live within your means is fine, living way below your means is ridiculous…what are you waiting for retirement? It may never come, your health may not allow it…enjoy life while you can</p>
<p>The person who dies with the biggest pile of cash while living frugally LOSES</p>
<p>Did. We are talking about UAW’s. These professionals clearly not PAWs and drive cars with 225k miles. They buy luxury every few years. </p>
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<p>Changed. I meant year. </p>
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<p>I am talking about the S&P 500 Index, not the treasury. Why would one need to sell in a bear market? Most market downturns last under 2 years. This is hardly significant when dealing in the long term. Exercise the willpower not to sell and just ignore the market for years. Markets recover from even the greatest crashes. Someone who held stocks from 1928 to 1936 would have been very happy with the returns.</p>
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<p>These people are not wealthy. UAW, not PAW.</p>
<p>I am not discussing the small percentage of people who actually accumulate wealth in the example. The vast majority of Upper class professionals have little to no wealth and taxes are their largest expenses.</p>
<p>Most of us accredited investors are also well aware that anything that offers you “20 percent return” is also something that offers high, high risk. Plus, when you get involved in those kinds of investments, you better first own your house, cuz they can’t take that in bankruptcy.</p>
<p>You can get some venture deals, but the thing about those venture deals is that your investment continually gets watered down. Unless you manage the IPO? You can’t garauntee yourself anythng, and if you can “get in on” a good IPO? First you will be expected to pay your dues with less attractive ones. 1 million dollars doesn’t even buy you a seat at that table, though they will let you pick up the check.</p>
<p>Better off to own your assets and stay out of debt.</p>
<p>Because you can’t invest it for 15% - 25% easy.</p>
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<p>Peace of mind.</p>
<p>John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.</p>
<p>R U L E # 4
Capital is in two varieties: Mental and Real, and, of the two, the mental capital is the most important.</p>
<p>Holding on to losing positions costs real capital as one’s account balance is depleted, but it can exhaust one’s mental capital even more seriously as one holds to the losing trade, becoming more and more fearful with each passing minute, day and week, avoiding potentially profitable trades while one nurtures the losing position.</p>
<p>Another rule:</p>
<p>R U L E # 9
Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly.</p>
<p>The academics will never understand this, but those of us who trade for a living know that there are times when every trade we make (even the errors) is profitable and there is nothing we can do to change that. Conversely, there are times that no matter what we do–no matter how wise and considered are our insights; no matter how sophisticated our analysis–our trades will surrender nothing other than losses. Thus, when things are going well, trade often, trade large, and try to maximize the good fortune that is being bestowed upon you. However, when trading poorly, trade infrequently, trade very small, and continue to get steadily smaller until the winds have changed and the trading “gods” have chosen to smile upon you once again. The latter usually happens when we begin following the rules of trading again. Funny how that happens!</p>
<p>There are many here that have a lot of experience in investing, trading and financial management. We’ve all made lots of mistakes and hopefully learned from those mistakes. Go and make some mistakes and maybe you’ll learn something about what you are trying to talk about.</p>
<p>This is not necessarily true. Investing does not have to confer a large amount of risk. Entrepreneurs with previous success who present a sound business plan will not be risky. </p>
<p>Conventional investments that are available to everyone tend to reward high risk. These private equity investments are not necessarily high risk.</p>
<p>I don’t see whats wrong with investing in multifamily housing with an experienced deal maker. It is recession proof and with the proper management and market selection, it should be a safe investment that generate above average returns.</p>
<p>From what I can discern from the article, McAfee did not invest the money?? I do not see how building $25 million houses constitute as investment activity.</p>
<p>^^^Oh My… as if we can really truly measure RISK.
THAT is where we have gotten into so much trouble so many times, esp since the economy has been dominated by and driven by finance in the last 8-10 years.</p>
<p>CC- I think BCE is trying to explain to you how risk is actually a cyclical and evolving factor.</p>
<p>BCE_ what is the name of that thread about endowments, started by dstark, I think?</p>
<p>CC- PLEASE LOOK AT THAT THREAD before you idolize Private Equity. Yes, over a very long time (which is money LOL), PE can pay off, but it is VERY VERY illiquid and can tank all at once, and is usually very very leveraged, and does depend on the availability of cheap capital and credit.</p>
<p>Not to mention the fact that it may be a zero-sum game in terms of real economic growth for the economy.</p>