Discretionary income

I was looking at the effect tax increases and lending rates have on purchasing power over the past three years. Using nice round numbers of 100k salary, family, one income:

(Tax accountants can verify if nets are right…)

2007: 100k gross equals 5,900 take home per month. 650k borrowed at 2.5%, over 30 years costs 2,568. So disposable income is 3,332.

2010: 100k gross equals 5,220 take home per month. 650k borrowed at 3.5%, over 30 years costs 2,918. So disposable income is 2,302.

So 1,029 euros worse off.

So the borrower has 1k less to fund a mortgage. 1k a month at 3.5% over 30years would finance a 225,000 euro purchase.

Your figures are broadly correct, but what question are you asking?

€100k salaries are usually the late 30’s early 40’s salary range (children also), for those in senior management, very few would take a 30yr mortgage, very few would being extended €650k even in 2007.(I know I asked)

€2302 is still alot of money to live on post mortgage, we would be in that catergory, we save €500 pcm, and we have no debts except a mortgage, and whilst our discretionary spend is down hugely, we don’t have a €650k mortgage mind, we still spend but we are more careful how we spend it… its a fact of life nowadays.

When you say “worse off” they are financially as shown, but they should be able to cover it, based on the figures you used.

I just thought I’d ask.

Well, expenditure usually expands to meet income, even if some of it is in the form of saving.

There are plenty of people in their 30s who have taken out large long-term mortgages in the last five years.

If income is not rising (there is some evidence they are falling), taxes are rising, fixed costs are rising, then disposable income will fall. Falling by a third in a year is pretty shocking. The question becomes what is cut - spending or saving? Both are, on balance, bad for the economy. At the moment, a decline in spending is probably the more damaging. The evidence from PSC is that debts are being paid back, so it is spending that is taking the hit.

Why do you think spenidng and savings are bad for our economy.

Backwards - the decline in spending and the decline in saving are bad - which one is more bad? Generally and in current conditions? I think money moving is more important at the moment, so I think reduced spending is worse.

Thats a good question.

I think there needs to be a balance, without spending shops close, and jobs are lost, without savings the economy suffers, in that people have no safety net, and thereby ask the state for help.

What the balance is, I dunno honestly.

We have spent more this year than the last 2 combined, as we were totally fed up with looking at the same curtains/paint etc… I think people should spend if they have it, not borrow it, I also think that a few quid put away is also desirable.

Sorry YM… on your point I think the playing down of Debt especially Credit Card debt is a good thing, and people become insular for time when doing it, which does change.

People will, IMO, say “hey we have saved and repaid the debt”, and will loosen the strings a little bit, in the future.

I would predict that spending from late Sept to Dec (pre Christmas) will be robust, I maybe wrong but austerity has a way of teaching people tough lessons.

Then on a macro level, savings will prove to be the saviour of the economy, as when you save you are very slow to spend money, your definition of value expands, which will mean that retailers will either comply with the new vista, or simply close.

Finally we went to the RDS in Wednesday and brought a picinic (to save money), it was €51 to get in, pony rides, train etc etc total spent €106… without buying food, we still had a fantastic day out.

If all that makes sense? I suppose " you have to cut your cloth" really.

Thats practically a milch cow every month . . . . No more no less . . . . . . . .

This looks like it assumes ZERO pension and life insurance contributions. Based on that level of salary and at (alleged) bargain basement public sector rates of deduction you should probably knock another 600 or so off the take-home levels.

You could improve the position by assuming that the kind of property a €650k mortgage would buy back in 2007, would now only necessitate a c€400k mortgage.

Of course if you were stuck with the 2007 650k mortgage then thats a different story.

Not to put words in OP’s mouth, but I don’t think any of that is really the point. To me the point of OP’s post was to highlight the relative decline in money available for funding a mortgage, not the absolute numbers or specifics of spending or whatnot.

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On the mark IMHO, Larry - the rules appear to have shifted considerably with the banks, let alone the almost accross the board salary cuts - all meaning what? - Lower availability of money to all, less in the pocket for pretty much all i.e less discretionary income. Surely this can only mean a further decline in prices?!

No’r am I trying to put words in, but €2200 left after the Mortgage… very few in this country would have it.

The figure’s and the thread is about “discretionary income” ie post mortgage…

They have €1,000 pcm less to buy wine/cappachions/a Ralph Lauen shirt and Tommy Hilfiger trousers… are you sorry for them?

I can empathise… but that’s my length of caring.

It’s a hypothetical exercise but I’m a little concerned about some of the wording that is being used and how it may be a little misleading. (Please correct me if I am wrong?).

My concern here is the idea that seems to be expressed that your discretionary income is that part of your income which is left over after you have paid your taxes and government duties/obligations (levys, stamps, social insurances etc) less your mortgage payment.

I thought however that your discretionary income is is that part of your income which is left over after you have paid your taxes and government duties/obligations (levys, stamps, social insurances etc) BEFORE ANY other paymens (Such as your mortgage payment OR Rent OR neither of if you own your own place or sleep under a bridge or in a caravan or hotel or tent etc. Since these ARE ALL DISCRETIONARY).

I just want to try to sort that out since my reading of the OP message seems to be to indicate that it’s the pice after mortgage payment rather than before mortgage payment that is discretionary?

You know what they say, discretion is the better part of income… 8DD

A bit of research leads to some clarification:

Brilliant :smiley:

OK! Mines about €50 a month (or €450, if I lock the missus in the celler! :angry: )

Overall not an amazing amount of money worse off, but the big question would be are they still earning the same salary? If so then they should be in good shape.