Question on something Steve says in his Book

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

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

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Steve’s book is 12 Years plus old and the contents are largely out of date.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

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