# Posts for Tag: money

### How do Americans Spend Money? US Household Spending Breakdown by Income Group

Posted In: Money
##### How much do US households spend?

This visualization is one of a series of visualizations that present US household spending data from the US Bureau of Labor Statistics. This one looks at the income of the household.

One of the key factors in financial health of an individual or household is making sure that household spending is equal to or below household income. If your spending is higher than income, you will be drawing down your savings (if you have any) or borrowing money. If your spending is lower than your income, you will presumably be saving money which can provide flexibility in the future, fund your retirement (maybe even early) and generally give you peace of mind.

I obtained data from the US Bureau of Labor Statistics (BLS), based upon a survey of consumer households and their spending habits. This data breaks down spending and income into many categories that are aggregated and plotted in a Sankey graph.

Instructions:

• Hover (or on mobile click) on a link to get more information on the definition of a particular spending or income category.
• Use the dropdown menu to look at averages for different groups of households based on income. This data breaks households into quintiles (groups of 20%) by income. The lowest quintile group is the group of 20% of households with the lowest income (and spend on average ~$25,500/yr). As stated before, one of the keys to financial security is spending less than your income. We can see that on average, those in the lowest quintiles may be borrowing or drawing down on savings to live their lifestyle, while those in the highest quintiles are saving money and contributing to wealth. This fairly high level of borrowing/drawing on savings from the lowest quintile households may be deceptive because it includes seniors who are drawing down savings that were built up specifically for this purpose, and college students who are borrowing to go to school. These groups generally don’t have significant incomes. How does your overall spending compare with those in your income group? How about spending in individual categories like housing, vehicles, food, clothing, etc…? Probably one of the best things you can do from a financial perspective is to go through your spending and understand where your money is going. These sankey diagrams are one way to do it and see it visually, but of course, you can just make a table or pie chart or whatever. The main thing is to understand where your money is going. Once you’ve done this you can be more conscious of what you are spending your money on, and then decide if you are spending too much (or too little) in certain categories. Having context of what other people spend money on is helpful as well, and why it is useful to compare to these averages, even though the income level, regional cost of living, and household composition won’t look exactly the same as your household. #### **Click Here to view other financial-related tools and data visualizations from engaging-data** Here is more information about the Consumer Expenditure Surveys from the BLS website: The Consumer Expenditure Surveys (CE) collect information from the US households and families on their spending habits (expenditures), income, and household characteristics. The strength of the surveys is that it allows data users to relate the expenditures and income of consumers to the characteristics of those consumers. The surveys consist of two components, a quarterly Interview Survey and a weekly Diary Survey, each with its own questionnaire and sample. Data and Tools: Data on consumer spending was obtained from the BLS Consumer Expenditure Surveys, and aggregation and calculations were done using javascript and code modified from the Sankeymatic plotting website. I aggregated many of the survey output categories so as to make the graph legible, otherwise there’d be 4x as many spending categories and all very small and difficult to read. ### Understanding Tax Brackets: Interactive Income Tax Visualization Posted In: Money ##### How is your income distributed across tax brackets? I previously made a graphical visualization of income and marginal tax rates to show how tax brackets work. That graph tried to show alot of info on the same graph, i.e. the breakdown of income tax brackets for incomes ranging from$10,000 to $3,000,000. It was nice looking, but I think several people were confused about how to read the graph. This Sankey graph is a more detailed look at the tax breakdown for one specific income. You can enter your (or any other) profile and see how taxes are distributed across the different brackets. It can help (as the other tried) to better understand marginal and average tax rates. This tool only looks at US Federal Income taxes and ignores state, local and Social Security/Medicare taxes. – Use this button to generate a URL that you can share a specific set of inputs and graphs. Just copy the URL in the address bar at the top of your browser (after pressing the button). Instructions for using the visual tax calculator: • Select filing status: Single, Married Filing Jointly or Head of Household. For more info on these filing categories see the IRS website • Enter your regular income and capital gains income. Regular income is wage or employment income and is taxed at a higher rate than capital gains income. Capital gains income is typically investment income from the sale of stocks or dividends and taxed at a lower rate than regular income. • Move your cursor or click on the Sankey graph to select a specific link. This will give you more information about how income in a specific tax bracket is being taxed. #### **Click Here to view other financial-related tools and data visualizations from engaging-data** As seen with the marginal rates graph, there is a big difference in how regular income and capital gains are taxed. Capital gains are taxed at a lower rate and generally have larger bracket sizes. Generally, wealthier households earn a greater fraction of their income from capital gains and as a result of the lower tax rates on capital gains, these household pay a lower effective tax rate than those making an order of magnitude less in overall income. #### 2018 Tax Brackets Here are two tables that lists the marginal tax brackets in the United States in 2018 that form the basis of the calculations in the calculator. 2019’s numbers are listed below. US Tax Brackets and Rates for 2018 Rate Single Taxable Income Over Married Filing Joint Taxable Income Over Heads of Households Taxable Income Over 10%$0 $0$0
12% $9,525$19,050 $13,600 22%$38,700 $77,400$51,800
24% $82,500$165,000 $82,500 32%$157,500 $315,000$157,500
35% $200,000$400,000 $200,000 37%$500,000 $600,000$500,000

You can see that tax rates are much lower for capital gains in the table below than for regular income (table above).

Capital Gains Brackets for 2018
Single
Capital Gains Over
Married Filing Jointly
Capital Gains Over
Capital Gains Over
0% $0$0 $0 15%$38,700 $77,400$51,850
20% $426,700$480,050 $453,350 #### 2019 Tax Brackets Here are the numbers for 2019: US Tax Brackets and Rates for 2019 Rate Single Taxable Income Over Married Filing Joint Taxable Income Over Heads of Households Taxable Income Over 10%$0 $0$0
12% $9,700$19,400 $13,850 22%$39,475 $78,950$52,850
24% $84,200$168,400 $84,200 32%$160,725 $321,450$160,700
35% $204,100$408,200 $204,100 37%$510,300 $612,350$510,300

You can see that tax rates are much lower for capital gains in the table below than for regular income (table above).

Capital Gains Brackets for 2019
Single
Capital Gains Over
Married Filing Jointly
Capital Gains Over
Capital Gains Over
0% $0$0 $0 15%$39,375 $78,750$52,750
20% $434,550$488,850 $461,700 #### 2020 Tax Brackets Here are the numbers for 2020: US Tax Brackets and Rates for 2020 Rate Single Taxable Income Over Married Filing Joint Taxable Income Over Heads of Households Taxable Income Over 10%$0 $0$0
12% $9,875$19,750 $14,100 22%$40,125 $80,250$53,700
24% $85,525$171,050 $85,500 32%$163,300 $326,600$163,300
35% $207,350$414,700 $207,350 37%$518,400 $622,050$518,400

You can see that tax rates are much lower for capital gains in the table below than for regular income (table above).

Capital Gains Brackets for 2020
Single
Capital Gains Over
Married Filing Jointly
Capital Gains Over
Capital Gains Over
0% $0$0 $0 15%$40,000 $80,000$53,600
20% $441,450$496,600 $469,050 For those not visually inclined, here is a written description of how to apply marginal tax rates. The first thing to note is that the income shown here in the graphs is taxable income, which simply speaking is your gross income with deductions removed. The standard deduction for 2018 range from$12,000 for Single filers to $24,000 for Married filers. • If you are single, all of your regular taxable income between 0 and$9,525 is taxed at a 10% rate. This means that your all of your gross income below $12,000 is not taxed and your gross income between$12,000 and $21,525 is taxed at 10%. • If you have more income, you move up a marginal tax bracket. Any taxable income in excess of$9,525 but below $38,700 will be taxed at the 12% rate. It is important to note that not all of your income is taxed at the marginal rate, just the income between these amounts. • Income between$38,700 and $82,500 is taxed at 24% and so on until you have income over$500,000 and are in the 37% marginal tax rate . . .
• Thus, different parts of your income are taxed at different rates and you can calculate an average or effective rate (which is shown in the summary table).
• Capital gains income complicates things slightly as it is taxed after regular income. Thus any amount of capital gains taxes you make are taxed at a rate that corresponds to starting after you regular income. If you made $100,000 in regular income, and only$100 in capital gains income, that $100 dollars would be taxed at the 15% rate and not at the 0% rate, because the$100,000 in regular income pushes you into the 2nd marginal tax bracket for capital gains (between $38,700 and$426,700).

Data and Tools:
Tax brackets and rates were obtained from the IRS website and calculations were made using javascript and code modified from the Sankeymatic plotting website.

### Visual Guide to Understanding Marginal Tax Rates

Posted In: Money

##### What is a marginal tax rate?

There is a fair amount of confusion about what a marginal tax rate is and how it affects how much tax you would owe the government on a certain amount of income. These graphs are here to help you better understand the difference between a marginal and average tax rate and to easily calculate these rates for specific examples in the US context. This tool only looks at US Federal Income taxes and ignores state, local and Social Security/Medicare taxes.

Marginal tax rates are the rate at which an additional dollar of income will be taxed at. There are different tax brackets (each with its own marginal rate) depending on which dollar of income you are looking at. This is very different from the Average (or effective) tax rate that is the result of applying these marginal tax rates across all of your income.

#### **Click Here to view other financial-related tools and data visualizations from engaging-data**

Instructions for using the visual tax calculator:

• Select filing status: Single, Married Filing Jointly or Head of Household. For more info on these filing categories see the IRS website
• Select percentage of regular income vs capital gains income. Regular income is wage or employment income and is taxed at a higher rate than capital gains income. Capital gains income is typically investment income from the sale of stocks or dividends and taxed at a lower rate than regular income.
• Move your cursor or click on the graph to select a specific income Make sure you note that the x-axis is a logarithmic-scale, meaning that income grows exponentially as you move to the right.
• Choose your graph preference One graph (Individual Tax Brackets) shows the individual tax brackets and how much of your income is taxed at the different marginal rates. The other graph (Aggregate Rates) shows the net result of applying the different rates to get your effective rate.
One of the most interesting things is to vary the proportion of regular income vs capital gains taxes. Generally, wealthier households earn a greater fraction of their income from capital gains and as a result of the lower tax rates on capital gains, these household pay a lower effective tax rate than those making an order of magnitude less in overall income.

Here are two tables that lists the marginal tax brackets in the United States in 2019 that form the basis of the calculations in the calculator. 2018’s numbers are pretty similar.

US Tax Brackets and Rates for 2019
Rate Single
Taxable Income Over
Married Filing Joint
Taxable Income Over
Taxable Income Over
10% $0$0 $0 12%$9,700 $19,400$13,850
22% $39,475$78,950 $52,850 24%$84,200 $168,400$84,200
32% $160,725$321,450 $160,700 35%$204,100 $408,200$204,100
37% $510,300$612,350 $510,300 You can see that tax rates are much lower for capital gains in the table below than for regular income (table above). Capital Gains Brackets for 2019 Single Capital Gains Over Married Filing Jointly Capital Gains Over Heads of Households Capital Gains Over 0%$0 $0$0
15% $39,375$78,750 $52,750 20%$434,550 $488,850$461,700

For those not visually inclined, here is a written description of how to apply marginal tax rates. The first thing to note is that the income shown here in the graphs is taxable income, which simply speaking is your gross income with deductions removed. The standard deduction for 2019 range from $12,200 for Single filers to$24,400 for Married filers.

• If you are single, all of your regular taxable income between 0 and $9,700 is taxed at a 10% rate. This means that your all of your gross income below$12,200 is not taxed and your gross income between $12,200 and$21,900 is taxed at 10%.
• If you have more income, you move up a marginal tax bracket. Any taxable income in excess of $9,700 but below$39,475 will be taxed at the 12% rate. It is important to note that not all of your income is taxed at the marginal rate, just the income between these amounts.

### Should You Invest Or Wait When The Stock Market Is At An All-Time-High?

Posted In: Financial Independence | Money

The stock market has been on a bull run (hitting numerous all time highs) for the last 8+ years and it’s not clear when it will end. UPDATE: it appears in early 2020 that the bull run has ended with the ostensible trigger being the coronoavirus pandemic and resulting economic turmoil.

Whenever there’s been an extended bull run, one question that comes to mind “Should I invest in the market now, or wait until a pullback?” The question comes about because of fear and loss aversion: fear that the market will drop right after they invest and the observation that people want to avoid losses more than they value gains. However, historically, the correct answer, at least over the last 69 years, has been to invest and not to try to time the market.

This was also demonstrated in the Market Timing Game; that people are pretty bad at predicting the direction of the markets and given the upward trend of the market, it’s simpler and more likely than not, better to just stay invested in the market. The corollary to this is that when you have additional money to invest (e.g. from regular savings from your paycheck or a one-time event like the sale of a house), it makes sense to invest the money and not worry about whether the market is at a high or low point. Some graphs that look at the distribution of returns when the market is at an all time high (ATH) can help answer this question of whether you expect to see worse returns than investing at other times.
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