Hi There,
I am currently in the midst of reading Steve Mcknight’s property investing book (From 0 to 130 Properties in 3.5 Years Revised Edition*) and on numerous occasions Steve refers to putting aside a percentage of your ‘pretax’ salary or wage to either pay off debts, invest or use for other purposes. An example of this is on the bottom of pg75.
I was just wondering how this applies to me as an Australian? As tax is taken out of my wage each week before it is put into my account, if I were to base my percentages off my pre-tax salary, I would be in effect attempting to save more than 100% of my net salary. Does Steve actually mean ‘post-tax’? If not, I was wondering if someone could explain how you could possibly base saving percentages on your ‘pre-tax’ salary considering I will never have access to my gross salary (pre-tax), only my net salary (post-tax).
Any help on this matter would be really appreciated.
Thanks!Hi TG04,
I had a look at that page, and it appears to me that those comments should have referred to after-tax income, not pre-tax.
As you say, there is no way you could cover 100% of pre-tax income using after-tax monies. Well spotted,
Regards,
Hi TG04, I had a look at that page, and it appears to me that those comments should have referred to after-tax income, not pre-tax. As you say, there is no way you could cover 100% of pre-tax income using after-tax monies. Well spotted, Regards,
Awesome. I thought so. Thanks.
It is common in financial planning and budgeting to use pre-tax income as a base for calculating savings percentages, because it represents the total amount of money earned before any taxes or other deductions are taken out. This can be helpful in planning because it allows you to see the full picture of your income and expenses, and to make decisions about how to allocate your resources.
To use pre-tax income as a base for calculating savings percentages, you would simply take the amount of your pre-tax salary or wages and apply the desired percentage to it. For example, if your pre-tax salary is $50,000 per year and you want to save 20% of it, you would aim to save $10,000 per year (20% of $50,000).
It’s important to note that when you actually set aside money for saving or investing, you will typically do so with after-tax dollars, since the money will have already been taxed before it is deposited in your account. However, using pre-tax income as a base for calculating savings percentages can still be a useful way to plan and track your progress towards your financial goals.
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