My Money Trail

Talking about salary and one’s earnings is a big taboo but I do not think that talking about it will set the world on fire. Interestingly, while we do not talk about salaries we do often enjoy talking about what our salaries enabled us to purchase or we do like to hear about what others have purchased with their salaries. We prefer to infer salaries from voluntarily divulged information and yet it is unacceptable to be overtly curious about what others make. What a sham! After reading up all the FIRE blogs and people’s savings rates in excess of 70%, I wanted to benchmark myself and see how I’ve been doing. To those of you who make a lot more than I do – I have no shame that I make or have made less 🙂 And to those of you who haven’t had nearly as good looking of an earnings history – believe me you don’t need as much. You probably are living a much richer life than your semi-frugal friend Dr. RebirthAt45.

Here’s the money trail I’ve been on so far right from my first paycheck as a 20 year old grad student at University of Minnesota. I grew up in a middle class family that couldn’t afford a car at the time I was attending college (1997 to 2001).  I’ve had very generous and loving parents who paid for my college and I ended up graduating with no college debt. After finishing college I went right back to school to pursue my doctoral degree in Engineering. No breaks. 4.5 years of grad school straight after finishing 4 years of college. I was taught to value education. A lot. I was very fortunate to get into grad school with a research assistant’s job in a field that I really loved. Tuition, health insurance and stipend to live on – are you kidding me ? Everything paid for.  It doesn’t get any better than that. I was Dr. RebirthAt45 at the rip old age of 25 went on to get my first corporate job as a research engineer in 2006 when I moved to the greater Boston area. The Dr. had no debt.

Many years later did I realize that grad school was probably the best time of my life. But Mr. RebirthAt45, the then 25 year old wanted to get out of college and all he wanted was to make more money. I got out of college and married Mrs. RebirthAt45 in December of 2006 so we could file a joint return with the IRS! Talk about saving habits 🙂

I had a great time working for my first and only employer for twelve years where I did reasonably well with promotions and raises making just over a $100K until 2013 (The bump in 2011 earnings in the chart below is from a $40K realized profit from stock sale). We had our first child in 2011 and I like to think that it was all her behind the 2011 spike :). I landed an expat assignment in the year 2013 and went on to live in south east Asia for about 3 years. The expat assignment not only bumped up our family income from 2013 through 2015 but we were also able to save a lot because all our expenses (housing, car, utilities etc) were paid for. Our second child, who is now a very hard to manage boy, was born in Malaysia in 2014. By 2015 the job assignment was done and we felt like we had to move back home to Boston to get our 4 year old girl in a school. So, we packed our bags and moved back to Boston in the summer of 2015. We bought ourselves our first house and were living the dream. This however didn’t last long and Mr RebirthAt45 and Mrs RebirthAt45 decided to move back with kids to Asia on another job assignment and we’ve been at it for little over a year.

Earnings and Taxes

The chart shows our family earnings on my single income. The value that Mrs. brings to the family by taking care of it is way off the charts! The sum of grey and blue bars is Adjusted Gross Income (left vertical axis) and the grey bar is the taxes (Fed + State + Social Security + Medicare) we’ve paid every year. The dashes show our effective tax rate (to be read with the right vertical axis). We’ve crept up to 30% tax rate and expect to pay about 35% or more in 2018 living in Asia.

At the end of all this exercise and digging through my tax returns, it turns out my total after tax-earnings sum up to $1.5 MM and when I convert all of that to 2018 dollars adjusting for inflation the number comes to $2.4 MM. That is what my after tax income would have been had I been paid all of the after tax dollars in 2018. My net worth at the end of 2017 was $1.75 MM. So assuming there was no growth in my savings over the 17 year period other than 3% inflation, I had a savings rate of 1.75/2.4, which comes to 73%. Not bad eh! But in all honesty I do think my savings grew a fair bit more than inflation rate and my savings rate would average somewhere in the 50 to 60 % range. Even though I wasn’t familiar with the concepts of FIRE, I think I was doing things right.

 

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6 thoughts on “My Money Trail

    • Thanks for stopping by. You’re right in pointing out that the AGI does not include the 401k and therefore that would up the savings rate. But I do not have other significant savings that did not funnel through the AGI except for the 401K – 6% of base pay + 6 % employer match. You can look at my 401k on the net worth page. I never maxed out on the 401k, which in hindsight may have been a mistake. I never liked the idea of locking money until you’re 59.5 years old. But there are ways to unlock the money through IRA conversion ladder should you choose to retire early and have little “earned income”. Lastly I dont have much in HSA to swing the chart or savings number.

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      • Indeed. Then that’s a boost of (6+6)/(0.94*0.75) ~ 17% in your saving rate. So you are back to 70% saving rate. 👍

        I made the same mistake on my 401k, but luckily have rectified it last few years. It’s sort of ‘free’ money. Even without the rollover/annuities, the 10% penalty is not a bad option given that you might be in the tax free bracket after moving back (for the IRS). Still get an arbitrage of ~15%.

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      • I have made quite a few financial blunders as well – and am planning on writing a piece on that. US citizens are taxed on their worldwide income by the IRS so I’ll be in the same tax bracket. When I do reduce work and reduce “earned income” I can dig into my 401K with 10% penalty. However even that is not needed. Over a period of 5 years one can convert an IRA to a roth IRA through a conversion ladder and withdraw both tax and penalty free! (provided your annual conversions to roth IRA are below the taxable income limits).

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