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URL:  http://boards.fool.com/from-rays-response-ltlt-and-the-people-who-10141397.aspx

Subject:  Re: Honest IRA/Roth Comparisons Date:  3/30/1998  11:55 AM
Author:  PSUEngineerFool Number:  2507 of 76418

From Ray's response:

<< And the people who qualify *can* afford to do it. It just takes some financial discipline. I doubt that
you'd tell me that a family earning $40k (the *beginning* of the nondeductible phase-out range for
1997!) can't afford $2k for an IRA.

Yes, that's exactly what I'm telling you. I think the data gathered by the US government bear me
out.
Back-of-the-envelope estimates:
$40,000 annual income, family of four.
Fed tax= $4,500 ($10,000 std deduction)
State = $1,200 (flat 4% of AGI)
FICA = $3,000 (7.5% of $40,000)
Total taxes = $8,700

Housing $12,000 (est $1000 per month)
food $5,200 ($100 per week, $25 per person per week)
utilites $2,400 ($200 per month, gas, electic, phone)
clothing $2000 ($500 per person per year)
car $4,800 ($400 per month, payments & insurance)
Total major expenses: $26,400

Left over cash, $4,900 ($40,000 - 8,700 - 26,400)

Minor & misc expenses can easily consume that remaining $4,900--I didn't account for any credit
card payments or any other loan payments, or any other savings (such as saving for college
expenses for the kids).>>

If your add insurance to your example, your example will make it clearer that it is hard to contribute $2k with a family income of $40,000. Where I work, family health insurance will cost $250/month or $3000/year. Your could gamble and go uninsured, but I wouldn't gamble on it.

And don't forget life insurance. You need some for both of you even if your spouse doesn't work. The non-working spouse needs insurance because who will take care of the kids while you are working if he/she dies. Life insurance should set a family back $30-$50 per month.

In the end, not much left over for regular house and car maintenance, birthdays, Christmas, and other small costs.
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