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theman2 said:
Your cash does lose value in the bank. Sure, you may still have the $100 you started with at the end of the year. If $100 only buys what $95 would have last year, you have lost money in real terms.

The problem with interest income is that it is taxable at ordinary rates just like a w-2 and you pay taxes yearly on that interest.

I have already agreed that the buying power loses value with inflation.
The thing that has not been answered is at the end of the year what's the difference between your income being from a 1099 or W2? They are both taxed at the same rate and the person with the 1099 income has the added bonus that he did not pay the $5480 in Social Security tax and whatever Medicare would have been. Still don't know how the 1099 guy is losing money any worse than W2 guy

batorok said:
It's the loss of capital supplying that interest that is costing you at the end of the year, through inflation.
So the 1099 guy is worse off because he had the $100k in the bank while the W2 had to accumulate it during the year? Still not getting it, I feel inflation will effect both equally

batorok said:Shugady said:What savings vehicles are people using that allow you to get such high pre-tax saving rates (50%+)? The 401k limit is 15000.

I dont' know about everyone, but the employer match doesn't count against your max, so that helps, my employer actually "matches" about 11% of my salary if I put in just 3%, so theoretically I could put about 25% plus into my pretax 403b. If you are self employed you can get quite creative and save a lot more pre-tax.

Also, people might just be calculating like this: how much they save/total pre-tax income= savings rate.

Oops, duh. I misinterpreted the original post. Considering this, my pre-tax savings rate (total savings [including match]/gross salary) is about 26%. This, unfortunately, also happens to be my pre-tax-vehicle savings (total savings in pre-tax accounts / gross salary). Need to figure out how to save some of that after-tax money.

summer2005 said:OP, perhaps set out some guidelines for the calculation method, lets all follow these and recalculate. just an idea.

Agreed...I included the following in my post:

- Total yearly pre-tax income
- Size of household, ages, # of kids
- Location
- Total yearly monthly expenses
- Estimated taxes
- Savings (pre-tax income - expenses - taxes)
- Savings % (savings/pre-tax income)

I added this list to the quick summary, feel free to edit it.

scott1961 said:100%, Paycheck gets directly deposited right into a savings account.
How do you manage your day to day expense???

scott1961 said:batorok said:
It's the loss of capital supplying that interest that is costing you at the end of the year, through inflation.
So the 1099 guy is worse off because he had the $100k in the bank while the W2 had to accumulate it during the year? Still not getting it, I feel inflation will effect both equally

Scott, please dont' think I'm trying to insult you or drive you away, just trying to illustrate the concept.
Example:
Person 1: 600,000$ bank account earning 4.6% interest neting 2300 in interest yearly to live off of.
Person 2: Monthly salaried job paying a 2300/mo.

fast forward 20 years.
Person 1: montly income still 2300$
Person 2: annual employer cost of living wage increases of 3% to account for inflation: 4154$ monthly income

amount of stuff person 2 can buy in real 2006 terms=2300$, amount of stuff person 1 can buy= almost half that.

Cost of peace of mind of having 600,000 secure in the bank vs. risking it in the stock market: about 260,000$ over twenty years.

cost of sleeping well at night not thinking about potential losses? Perhaps priceless to Scott.

Welcome to FWF and enjoy. I'm 36. The few posters that reveal much about themselves here tend to be younger (20s's), with some scattered in the entire range of ages and income/net worth.

batorok said:scott1961 said:batorok said:
It's the loss of capital supplying that interest that is costing you at the end of the year, through inflation.
So the 1099 guy is worse off because he had the $100k in the bank while the W2 had to accumulate it during the year? Still not getting it, I feel inflation will effect both equally

Scott, please dont' think I'm trying to insult you or drive you away, just trying to illustrate the concept. Example: Person 1: 600,000$ bank account earning 4.6% interest neting 2300 in interest yearly to live off of.
Person 2: Monthly salaried job paying a 2300/mo.

fast forward 20 years.
Person 1: montly income still 2300$
Person 2: annual employer cost of living wage increases of 3% to account for inflation: 4154$ monthly income

amount of stuff person 2 can buy in real 2006 terms=2300$, amount of stuff person 1 can buy= almost half that.

Maybe if I never made any changes but that wont happen. The main reason I am here is to find the best bank deals. I stay very short term so if inflation rises the rates I get in my bank accounts will also. 3% gain for the worker? My 1099 INT went up over 50% in the last year

Last year I invested 80+% of my pre-tax income. I maxed out my Roth and put the rest in a brokerage account which is 100% invested in mutual funds. Additions will be put into ETFs to gain some diversification and lower-fee investments over the next few years.

With housing markets where they are in northern-CA, I'm saving as much as possible so that I can buy a house if prices adjust. If housing does not become more affordable, I will continue to save so that I can move somewhere cheap.

The downside to my current situation is that I live at home with the parents. Next year, I will be able to save less than 50% of my income because I am ready to rent. I will be paying much more in taxes so that will lower my savings rate as well.

Edit: I am not spending as much money as I could obviously but I still feel my level of happiness is much higher than the friends that I have who consume above their means and are heavily in debt as a result. Before you impusle buy something, wait a week or two and decide if you still want it. Often it no longer is so desirable.

funkyfresh said:scott1961 said:3% gain for the worker? My 1099 INT went up over 50% in the last year

the worker's wage increases are compounded each year. in contrast, interest is spent so the principal doesn't increase and in real terms actually decreases.
I never said my principle increased, Just the amount of earned interest. A year ago I was averaging probably a little over 3% while now it's a bit over 5%. And a 3% gain per year for workers is not a given. During the slow period a couple years ago I did not give raises for 3 years, Many large companies even cut pay or at least froze wages and cut O.T