All Topics / Help Needed! / Question on something Steve says in his Book

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  • Profile photo of LoukedivaLoukediva
    Participant
    @loukediva
    Join Date: 2015
    Post Count: 3

    Hi,

    I am new to this website and am currently reading Steve’s book from 0-130 properties in 3.5 years. I am really enjoying the simplicity and clarity of how the book is presented but have just come across a quote that seems to be logical, but I can’t reconcile how it is achieved.

    Steve says that 10% of pre tax earnings go to charity
    10% of pre tax earnings go to reducing debt
    10% of pre tax earnings go to investing
    70% of pre tax earnings for ‘guilt free’ living

    When I tried to calculate this all I could see was that there was a -$42,000 difference between our current annual expenses and how much we would have available for ‘guilt free’ living.

    Is there someone out there that can explain this to me????
    Regards
    Loukediva

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Loukediva,

    When I tried to calculate this all I could see was that there was a -$42,000 difference between our current annual expenses and how much we would have available for ‘guilt free’ living.

    It would help if you shared the data you were using (even if not “actual” figures – e.g. you might not wish to share your actual income on a free-for-all website) but at least show us WHAT data you used.

    Like this – If your ACTUAL Income is $152k per Annum, and your expenses are $110k, you might retype them as $82k Income and $40k Expenses (a $42k difference). See, we DON’T need to know the actual numbers in use, but more WHAT data you are using (what is being subtracted from waht, etc).

    I quite appreciate I have probably picked the WRONG data as I haven’t taken 70% of anything yet – but you tell us which is the data you are using so we can help,

    Benny

    Profile photo of Tom@SadhanaConstructions[email protected]
    Participant
    @spartantom
    Join Date: 2015
    Post Count: 18

    It sounds like you’re doing the maths wrong. When Steve says 10% of pre-tax earnings, I assume all he means is 10% of whatever comes in, so really it’s 10% of net income. You’re right that if you use the pre-tax figures to work out your after tax expenses you’ll be in the red :-(

    Say for arguments sake you’re earning $100k using the 2014 tax rates (bearing in mind this is general advice only)

    Gross Income = $100,000
    Tax = $$24,947
    Net Income = $75,053

    Steve says that 10% of pre tax earnings go to charity: Pre-tax = $10k, After tax = $7,505
    10% of pre tax earnings go to reducing debt: Pre-tax = $10k, After tax = $7,505
    10% of pre tax earnings go to investing: Pre-tax = $10k, After tax = $7,505
    70% of pre tax earnings for ‘guilt free’ living: Pre-tax = $70k, After tax = $52,538

    I hope this helps

    [email protected] | Sadhana Constructions
    http:\\www.sadhanaconstructions.com.au
    Email Me | Phone Me

    Perth builders of developments and bespoke homes

    Profile photo of LoukedivaLoukediva
    Participant
    @loukediva
    Join Date: 2015
    Post Count: 3

    Thanks Tom!!! That makes MORE sense :)

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Loukediva,
    Your question intrigued me, so I set about finding my copy of “0 – 130 properties” to get your quote from the source. But, on a quick “skim through”, I wasn’t able to spot the part you were quoting.

    Can you help? If you could provide a page reference, or even just “which chapter”, that would be great – thanks,

    Benny

    Profile photo of IvanIvan
    Participant
    @imalby
    Join Date: 2015
    Post Count: 1

    Hi I have been reading Steve’s book 0-130 properties in 3.5 years in the book he mentions this website and some forms to look at, ie. a due diligence template pg61 and on pg 71 look at website for more templates? I cannot seem to find these on the website, can someone guide me to the right spot please?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Ivan i hate to say i think you are 7/8 years too late.

    Steve’s book is 12 Years plus old and the contents are largely out of date.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Ivan,
    Yes those templates are still available. First, register your book via this link :-
    https://www.propertyinvesting.com/store/0-130-properties-revised/register/ and a followup email takes you to the pages you want.

    I believe the templates may have been updated to match the revised version of the book. So if you have the earlier book version, some of the data presented may not match with the book – but hey, it’ll all be good !! :)

    Benny

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Loukediva,
    Well, I finally FOUND the quote in the updated book and had a good look at it. For anyone else looking, this quote is from the later “0-130” book, not the earlier 2003-04 version. It is in Chapter 5 “The Truth about creating Wealth”.

    Steve says that –
    10% of pre tax earnings go to charity
    10% of pre tax earnings go to reducing debt
    10% of pre tax earnings go to investing
    70% of pre tax earnings for ‘guilt free’ living

    When I tried to calculate this all I could see was that there was a -$42,000 difference between our current annual expenses and how much we would have available for ‘guilt free’ living.

    Is there someone out there that can explain this to me???? – Loukediva

    It appears to me that Steve may have been referring to using pre-tax amounts quite deliberately. Of course, the final “70%” left over would have had all Super, tax, etc taken from it, so the amount available to “live” would certanly not have been 70% of pre-Tax – perhaps only half of that?.

    The pages following that quote often refer to “pre-tax” figures in an effort to SHOW just how people can be confused and/or misled by considering their pre-Tax salary as though it were post-Tax income.

    On the other hand, one workmate of mine would, on a hot day, turn down an icecream by saying “The price shows $4, but it would be $6 from my pre-tax Income – that is too expensive!” Like Steve, he was looking at the REALITY of his spending in a very different way to many of us.

    On page79, Steve says :-
    “Do you know the difference between your gross salary (i.e. pre-Tax) and what you receive as cash in your pocket (after-Tax)?
    A simple test to determine whether or not you’re on the right side of the lifestyle line is to calculate how much money you’re saving (or using to repay old debts) and then dividing it by your base salary. A great rule of thumb is to put away 10 per cent of your pre-tax pay to draw upon when you’re ready to begin investing.”

    Sounds to me like Steve really was meaning “Pre-Tax” back on page 75.

    And he got us thinking too, so – “Mission Accomplished?” ;)

    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I recall, way back, Steve saying:

    1/3 income to live on
    1/3 to invest
    1/3 to pay down debt.

    Not a bad way to do things I think.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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