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Welcome all seeking refuge from low carb dogma!

“To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact”
~ Charles Darwin (it's evolutionary baybeee!)

Thursday, July 2, 2015

Percentages are Often Meaningless

I posted something like this on my Facebook page a while back.  Rather than find it, I've decided to recreate it here.

Let's say that I take home $4000 per month.  Let's say my "basic" living expenses for home and car including all operating costs, insurances and whatnot are $2500 leaving me $1500 to live on.  Of that I spend $600 on food and clothing, $600 on entertainment and save $300.    My entertainment budget is currently 15% of my take home income.

At my annual visit to the financial planner tax person, I'm told that I really ought to cut back on my entertainment expenses so that I can put away more for retirement.  A somewhat dramatic one-third cut from current entertainment expenses is suggested.  This would amount to 5% of my current income and bring entertainment down to 10% of the total.   

Then I had a brilliant idea, I would buy a new car and move to a more expensive home in a more expensive neighborhood so that my baseline living expenses almost double to $4500 per month.  I change nothing else except that my former $300 for savings goes to buy food and clothing in more expensive stores.   So now, my total living expenses are $6000 per month, for which I dip into the home equity line of credit to cover at the rate of $2000 per month.  

The following year I visit my financial planner tax person who is horrified by recent developments!  I calmly explain that I did as requested.  I have cut my entertainment expenses to 10%.

Why is he/she not impressed??   


1 comment:

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