EduCounting

Episode 105: Follow the money!

How much you really earn with Mak and G

SHOW NOTES

Today, Mak and G look at the importance of knowing how much money you have coming in vs. how much money you have going out…

 

In this episode, Mak and G look at how to calculate your income vs your spending and why it’s so important to do this properly.

 

We also talk about what people tend to spend their money on, the biggest costs we have, and how budgeting can help…

 

“About a third of Americans say they wish they’d spent less in the previous month.” – Mak

 

“You should know your numbers and try to be within the general guidelines.” – G

 
Time Stamps:

00:19 – How the markets have been moving this week.

01:03 – What your federal taxes pay for and how social security works.

02:02 – How much the US government’s debt is increasing.

03:13 – The importance of knowing your income and your spending.

06:00 – How different age groups understand their spending habits.

07:20 – When I started budgeting and how much it helped me.

09:29 – What are the biggest costs for most people are.

11:55 – How much of your total net pay goes on monthly costs.

14:00 – The ‘money suckers’ in our account and some famous people who overspent.

 

Resources:

US Debt Clock

 

Connect with Ben Jones:

 

TRANSCRIPT

DAD: Hello and welcome back to Money with Mak and G. This for the weekend in May 14 2021. Don’t forget to like, subscribe and comment on the podcast. Hey, Mak over to you.


MAK: Hello, this is Mak and these are the markets. The Dow pulled back  just a bit along with the S&P but still up double digits percentages for the year. The NASDAQ dropped back to around 4% up for the year. It’s been a bit of a roller coaster for the NASDAQ up and down then a loop to loop. Only thing to do really now is throw your hands up and enjoy the ride. Maybe scream a bit too.


GRANT: Bitcoin dropped over 10% last week in his bag under $50,000. Apple is down again. It’s down overall for the year and dad’s trading account continues to get thumped out for dad. But the years and over or at least that’s what he tells us. Over to you Dad.


DAD: Thanks, G. As we continue through assessing our situation, we touched a bit on taxes last episode. In addition, I know we covered taxes in our whole prior episode in depth. Just a quick reminder that our federal taxes go towards health care for all Americans. This would include those who are older and aren’t taken care of by the state. This is part of the FICA tax called Medicare. Nice name, right? As it’s part medical and part care. The other part of FICA pays some money to you when you’re no longer working. That’s when you’re retired. It’s called So cial Security. It gives people in our society some security, that they’ll have the money when they’re older, it’s kind of a forced way for people to help manage your money. Okay, those are the biggies but other federal taxes cover the military additional money for the poor pay for government jobs and many other smaller items. But one last big thing is the expense of covering the interest on the money that we borrow. I’m not a huge fan of owing people money. So maybe I should pass this back to you, Mak.


MAK: Thanks. I think your new favorite website is USdebtclock.org. I can’t say I understand why you like it so much. You just have a bunch of numbers flashing on the screen as they keep changing. But he did say it’s almost like X-ray vision because it allows you to see inside the economy, I too thought X-ray vision would have been much cooler the numbers flashing on the screen. Anyway, it has information on the average home price, credit card debt, the number of people with and without jobs and a lot more. It also has the interest on all the money the government borrowed. I saw it, it just kept spinning upward getting bigger. I know it probably made him a bit sick to his stomach. I looked at it in there were so many zeros. We’ve sat together for about 30 seconds and we saw the debt went up about a million and a half dollars. Kind of hard to comprehend. After those 30 seconds, it was time to hand Dad a bottle Maalox to calm his stomach. After you take all these taxes from your paycheck, you’ll have less money. It can be about 10% on the low end, and it can go up over 40%. Personal finance is trying to change taxes so it looks like it’ll change. Taxes depend on a lot of things. So let’s make it easy. If you make $60,000 and pay 10%, that would mean that you have $6,000 in taxes taken out. So that would leave you with $54,000. If you look at a monthly that changes from $5,000 per month, down to $4,500 per month, that $500 can make a big difference. So get a grip on the money you put in your bank account from your work. We’re gonna need that as your starting point for assessing your current situation.


DAD: Now, what about your expenses? It’s totally like counting calories. If you’ve ever been on a diet. You know I am. Yes, I dropped it 238, I’m making progress. And no, it’s not like the see food diet where you see food and eat it. You have to write down everything you eat with the calories for each item. Now, depending on your goal, you have to keep your calories under a specific amount. If you don’t, you gain weight. It’s a lot like spending money. If you spend more than you make you go into debt, which is like a big weight on your shoulders, and it causes stress. If you’ve ever counted calories, you hear the same thing all the time after doing it for a period of time. Wow, I didn’t know I ate that many calories until I started tracking it. That’s exactly the same for money. I hear it all the time. I didn’t know I spent that much. I bet if we had grant track his time playing video games, we’d probably all be shocked.


GRANT: Do you think most people know where they spend all their money? I bet these numbers may make you feel better that you’re not alone because most people don’t. A little bit more than 1/3 of the people know their spending. But do you think it matters your age? Does wisdom go to those who are older?


DAD: It has to Gee, I feel so much wiser all the time.


MAK: Yeah, just Yesterday you put your bagel in the toaster and cooked it twice, setting off the fire alarm. If that’s why they’re, I might want to pass. 


GRANT: Ouch. Dad that was a burnand yes, I mean the pun. Okay, Mak and I are Gen Z, it’s a generation born from 1997 to 2015, which means anyone between six and 24 years old. Millennials were born from 1981 through 1996. They’re now 25 to 40 years old. Well, Gen X are now 41 to 56. That’s Dad. And if you’re a boomer, you’d be 57 to 75 years old. Okay, so hopefully you know what group we’re in. Here we go. Why is it called boomers anyways?


DAD: Well, after the Second World War, all the soldiers came home after years of fighting. They had a great deal of hope and optimism and really wanted to start a family. So there was a baby boom, which means lots of babies were being born. If you’re one of those babies, you’re a boomer.


MAK: Interesting. So what did you find out chief?


GRANT: Well, if you’re the youngest group, which is a Gen Z, then 23% know what they spend. About 27% of millennials have a handle on their spending, which is a bit better. Gen X is even better at a 34% rate. And boomers are double the youngest of us. Yes, that Gen Z at 46%. That’s about half of boomers understand their spending,


DAD: I think, have a pretty good idea why boomers are a bit more zoned in on their spending,


MAK:  is it because they don’t have a lot of other stuff to do?


DAD: Ah, whoa, smack. In reality, boomers represent the largest generational group of any in the US. They’re more active now than ever and living longer and taking better care of themselves. I think many have to know their money situation when they retire. If they’re not working as much, they don’t actually have the ability to bring in more money. So the money saved along with Social Security are generally the only way they get by.


MAK: That’s interesting. I remember you telling me Mr. Miller’s busier now than when he worked. Hey, Dad, did you know about a third of Americans say they wish they’d spend less than the previous month? It sounds like most people know what’s going on. But if you want to take control, you got to get your numbers right. It sounds like you’re putting together information for a budget. When did you do your first one?


DAD: Well, I did a mental budget in high school. It helped some but not as effective as a real one on paper. But in college, I had to get more focused. Since mom and dad just didn’t have any financial flexibility with six kids, you got your money, and nothing more. It taught me some big lessons. I had to make my money last. Sometimes I’d splurge and eat out a couple times over a couple of weeks and the money got low. I had to cut cost, which meant I had to eat a lot of ramen noodles.


MAK: Are those the Japanese noodles that come in something that looks like a plastic bag? I saw a 24 pack at Walmart for less than $6. That means each meal would cost 24 cents. Wow. If you ate them each day, three times a day, that would be about $250 a year. That is crazy cheap. I bet back in college, it was probably around 15 cents.


DAD: It sure was. And if you ate them for a while you get pretty skinny pretty quick. My first real budget is when I got my first job I lived at home, I had to pay some rent, but it was better than being on my own. I didn’t want to go into more debt. I had to pay my parents back for school and had some other small school loans. I didn’t like the feeling of paying money back each month. So I created a budget to figure out how much my new job would cover. I found out I wouldn’t have much left over. So I actually negotiated my rent down with my parents. Because I needed clothes for work a car, gas, insurance and all of the things that were new to me. It was a huge shock.


MAK: Well, it’s definitely good to be better prepared. You shown us you can pull most of the information from your spending off of monthly statement. Anything you spend on credit cards, your mortgage payment, stuff from your bank and utilities, you know, like lights heating and cooling, time to grab your paper copy or go online for your electronic copy. Dad’s still likes paper, get a couple of months to start to get a feel for it. Look at the information and put the information into buckets. We’ll give you a couple of buckets below.


DAD: So where do you think most of the money goes every month for most people?


GRANT/MAK: Your house


DAD: You got that right.


GRANT: Speaking of houses, you remember Michael Jackson, he’s from Indiana and was named the most successful entertainer of all time. He’s the  King of Pop, real royalty. Like many kings he loved to spend it, which when he didn’t know how to manage it well. He bought a home that he called Neverland after the mythical island and Peter Pan. He spent $80 million trying to buy the house in 1988. Then he invested $35 million to transform the estate into a thriller kids experience, which is like Disneyland. See what I did there? Use thriller in that sentence. Michael holds the world record for the best-selling album of all time with thriller. Very cool. Anyways, he had an amusement park, a railroad, Ferris wheel, merry-go-round, arcade and a zoo. Are you sitting down? It costs about $10 million a year to feed the animals and pay for those people who work there. Michael likes to spend money on other things, too. On one shopping spree that was filmed for a documentary, he spent $6 million. That was an over a year it was in one shopping trip. Crazy. He was making great money and even signed a $1 billion, yes, billion-dollar contract in 1991. It wasn’t enough and he filed for bankruptcy in 2007. I would have thought it would been a real challenge to figure out how to spend that kind of money but I would have loved to try.


DAD: So we have our house or rent payment to think about. How about we name a few other ones that happen every month. Any idea of other items you spend money on each month?


MAK: Food like Doritos, string cheese, Boston cream doughnuts and lots of chocolate. 


GRANT: Utilities like electricity for my iPad, the TV and Switch and yes, heating and cooling. 


MAK: Transportation like a Tesla, a bus, hot air balloon or an Uber.


GRANT: Insurance for braces and breaking my arm. Had to dad. Just like iPhone or iPad breakage, the car or a few Oreo if you’re sick.


DAD: Those are great, unsettling but great. Okay, your statements give you the information to assess your current spending. Those are the pieces of paper you get to show everything that happened in an account. So, do you have any general ideas of how much of your total net pay goes to keeping the family comfortable in the house or with food or other expense buckets?


MAK: Keeping a roof over your head is about 30% of net. Insurance comes in around 15% Mom’s delicious cooking, though prices is around 13%.


GRANT: Transportation like testing the Tesla or a big bus and Uber, that’s about 13%.


MAK: Although electricity for games, wonderful Wi-Fi, water and extra sewage removal is about 7%.


GRANT: Was that a shot at me? Extra sewage removal? Really? I know that’s poop and pee.


MAK: I’m glad you know your poop and pee G. Should it be a shot at you? We do pay more for removing more.


GRANT: I’m watching you sis. 


MAK: Watch all you want big bro.


DAD: Okay, okay, so those items are the biggies and are around 75% of the total. Every state is bit different. Homes in California cost a lot more than in Indiana. So probably more than 30% of your total. These are just guidelines.


GRANT: Does that mean the more money you make the more money you can spend on a house? 


MAK: Grant, are you trying to give dad a heart attack? I think he’s saying you should know your numbers and try to be within the general guidelines. And not to try to spend up to that amount. We’re assessing our current situation for being reasonable. If 75% is gone that leaves 25% for other stuff, which is really important to.


GRANT: Okay, got it. Well, we need at least 10% for shaving to build our wealth when we’re old and other stuff longer term. How about a little fun sis? I think that one’s 5%. The iPad and video games go in there.


MAK: I like some eating out, maybe some Starbucks and a couple other yearly things. Like our tennis camp this summer. That’s about 5% and we can’t forget about 5% for clothes which we’re not talking about assigned pair of Air Jordan number ones at $500,000. We’re talking about what we need to stay warm and kind of snazzy.


DAD: So there you go. 10% for savings, 5% for fun 5% for personal stuff, and 5% for clothes. I did some recent assessment on our own bills and found some money suckers just like the suckerfish on a shark. They hang around stuck to my pocket book. I promised the family the Disney Channel for three months during COVID. And now it’s been 13 months. Things just get attached and never leave. That’s why you have to know and assess where you’re at, or you won’t know what to do next. We do overspend and when researching I found a couple people who I think you’ll recognize who overspent too, and they got into some problems and went bankrupt.


GRANT: Henry Ford did. He said that you could have a car in any color you want as long as it’s black. While Disney went bankrupt. He kept going and now we have Avengers movies.


DAD: I’ll do the next one. This guy’s one of the biggest financial gurus in the world. Dave Ramsey, hard to believe but true. One last shocker of someone who went bankrupt not once but twice. He was ambitious, well loved and failed at business. He’s best known For the Emancipation Proclamation, which put an end to slavery, he was six, four, and he’s on the American Penny. 


GRANT/MAK: Abraham Lincoln?

You guessed it, we’ll leave it at that. We all fail at times. So get back up and keep going. Don’t forget to like, comment and subscribe. Thanks for being here, and we’ll see you next time. Bye!


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