You drag yourself out of bed five days a week, brew up some coffee, get dressed and then hurry down to your job where you spend eight hours or even more. Then, at the end of the day, you go home feeling totally stressed out – all in pursuit of that glorious paycheck.
But do you really own your paycheck?
That would be a no. In fact, you may own only a very small percentage of that check.
How can that be?
If you earn $90,000 a year
For the sake of an example let’s suppose you earn $90,000 a year. Let’s look at how much of that $90,000 your Uncle Sam takes.
First, there’s that nasty income tax. It’s based on the size of your earnings. If you don’t earn much, you don’t pay much. But in this case – at $90,000 a year – you will pay $18,000 in income tax. That’s 20% of your money. So now you’re down to 80%.
Your state will also want its share. If you live in Michigan, you’ll be taxed at the rate of 4.25%. The tax will be 3.07% if you live in Pennsylvania and 5.0% in Utah. So, if you live in Michigan it will cost your another $3825 in state income tax.
You will also pay a Social Security tax. While you may not ever get this money back it will cost you 6.2% out of every paycheck or $5580 a year.
But the government still hasn’t quit taking money out of your pocket because there’s the Medicare tax. This is an easier one to swallow because it helps provide medical care for the elderly. But whether you think this is good or not, it will nick you $1305 a year.
What you now have left
If you haven’t been adding up these taxes as we go, the government has now taken a total of $28,710 out of that hard-earned $90,000. So instead of $90,000, you have $61,290. While that may not seem too bad, there’s more to come because of the decisions you’ve made.
Your bad choices
It may be a bit harsh to say that you’ve made some bad or, even worse, stupid choices. But you probably have. And this will mean that $61,290 still isn’t yours. We live in a sort of “have it now” society and you, like most of us, have undoubtedly bought things you couldn’t really afford with the idea that you would pay back the money over time. To put this another way, you’ve willingly agreed to make payments on something you wanted to experience today but couldn’t pay for. The number one example of this is auto loans. Very few of us actually save enough money to pay cash for an automobile. Since the average auto loan today in the US is $30,000 this would mean a monthly payment of $503 or $6036 a year. Was it necessary to buy an automobile this expensive? Probably not. If you saved enough to put $3000 down on a new car you actually would have enough to buy a decent used car that could last you many years. But you didn’t so instead of you having that $6036, your bank does.
Last May’s graduates owed more than $36,000 in student loans. Since you’ve been out of school a few years we’ll assume that you don’t owe anything close to this. You could have had a plan that would have allowed you to graduate without owing anything in student loan debt but you didn’t. The good news here is that some experts consider student loan debt to be “good debt” because the money helped you get a better career, which meant earning more money. However, that said you probably have yearly payments of around $4000.
Don’t forget credit cards
If you’re typical you don’t have an emergency fund. This means that if you have to pay for an emergency you probably do it with, yes you guessed it, a credit card. In fact, thanks to not planning adequately the typical American has $4750 in credit card debt. That translates into $120 a month just in the minimum payments. Of course, if you make just the minimum payments you’ll owe that credit card issuer $1440 a year for many, many months. In fact, it could actually take you 25 years to pay off that $4750.
Where you now stand
After the government took its share of your paycheck you had $61,290 left. But now, after your $11, 476 of bad decisions and lack of planning there’s just $49,814 left. And that’s not the end of it. You now have to pay for things like shelter, food, clothing and utilities.
If you earn $90,000 a year, it’s almost certain that you have a mortgage. Houses in the US get bigger every year and so do the mortgages. According to The Motley Fool website people age 35 to 44 have an average mortgage payment of $1073 per month. That’s $12,876 a year. So now you’re down to $36,968 and were still not through.
Food and clothing
Let’s take food first. According to USA Today, it takes, on the average, $800 a month to feed a family of four, which is another $9600 out of your paycheck each year. The Bureau of Labor Statistics has found that $1700 a year is spent on clothing by the average family, which isn’t too bad. But subtracting the cost of food and clothing means another $11,300 a year you don’t really own out of your paycheck.
If you live in a part of the country where there’s both summer and winter your utility bills should be pretty constant throughout the year. This will be somewhere around $250 a month or another $3000 subtracted from your hard-earned paycheck.
If you throw your smart phone bill into the category of utilities, it’s probably costing you an average of around $150 a month – not counting the cost of the phones – or roughly $2000 a year. And if you’re an iPhone user you’re probably paying more as revealed in this short video.
Then there’s cable and Internet. Again, if your family is typical these two “luxuries” are probably costing you around $200 a month or $2400 a year unless, of course, you choose to cut the cable.
Since we’ve assume you have a car we can’t leave out the cost of fuel and automobile insurance. How much is gas costing you? The US average is approximately $2200, plus there’s the cost of insurance, which averages $815 per year. If you add this to that $6036 your auto loan is costing you then wow! That car just by itself is taking a hefty chunk out of your paycheck.
So how much of that paycheck is really yours?
When you add up all of this, what you have left – or how much you actually own of your paycheck is a whopping $15,233. And, of course, this doesn’t include saving for retirement. What this boils down to is that, sadly enough, the average American really owns about 17% of their paycheck.