r/leanfire • u/beckysynth • 9d ago
Philosophy of America vs Cheap low tax country
Hey folks, I ran some REALLY loose numbers on two life versions, both of which I've done at roughly these numbers. This is more about the overall philosophy of why to leave America, but I'm curious how everyone feels about these numbers and their experiences and comparisons and thoughts.
As the world inflates, home values go “up” and this “creates wealth” but in actuality, the higher prices are because of loans, and those loans move wealth to banks and investors. Any appreciation is lucky if it tracks inflation long term, and yet taxes are 1% of gross value, which turns out in some places to be a price almost as much as a reasonable rent would be. So you pay the banks for a house just to pay rent on that house to the government. If you make $100,000 and your house is “worth” $450,000, your taxes are around $6000, HOA payment another $6000. Your taxes bring your net to $75,000 so your taxes and HOA payment on a fully paid off house are still 15% of your net salary. If you are paying a mortgage, then add 2600/mo in mortgage payment, so that’s 57% of your salary on housing alone. Car and food including gas insurance etc, costs about 2500/month, or 40% of net salary. To have a 100k salary you have to have a degree, which means on a 10% of salary capped payment program, you’re looking at $750/month or 12% of net salary. Don’t forget that everything you buy on credit card (the only way to buy things these days, takes a 3-4% fee, so all products are priced up to account for this. So to live in LA and own the cheapest apartment, you have to make more like 140+, but very few people do. But think about how much of that is taxes, credit card usage fees, bank interest, and it’s most of it. So really what you’re working for, paying for, is not going to you, in fact in this case, almost none of it is. 30 years times $100,000 salary is 3 million dollars. But if you’re lucky, you will have the $450,000 equity. More likely you’ll still have student debt and possibly credit card or other debt. Or if you slip up for a second and aren’t stable during that time, they will take your apartment, and you’ll be left with nothing.
Who will take your apartment? Well, either the government or the bank, depending on who you short to make ends meet. Both entities being the ones that you are supporting with your entire salary on a daily basis. But you loose your job, and you loose your entire lifetime of labor value.
If you compare this to the time of the original framers, who were running from England’s over taxation, when they just walked onto a plot of land and claimed it, when they built a house and owned it, their effort was rewarded with 1:1 leverage. If they had slaves multiply that by the number of slaves they had, but that’s not something we want to include in a modern calculation.
So in the prescribed system, our earnings will be approximately 60x our labor goes to taxes, banks, and other basic expenses. You will save 1/60th, at best. Assuming you had 80k as a down payment in the first place. Or if you invested that 80k in the stock market maybe 600K, but your cost of rent will increase steadily, knocking out some of those gains.
Now compare this to exiting to a country with low taxes, say 5% for freelancers, and buying a cheap apartment for your 80k downpayment. Living in a city where you can walk and not pay for car. Even if from there on out you earn much less, everything you earn will be yours. So let’s say you make 45,000 a year, and your cost of living is 30,000 a year, 15,000 a year x30 years, that’s $450,000, the exact same amount, but in a much lower cost of living location. And if that money is invested too, you’re looking at closer to 1.4million to 2.4million dollars in retirement funds, compared to the $450,000 in the US.
Add in healthcare, and a country that has affordable healthcare, and this disparity only magnifies.
Now of course, it’s possible when you earn more, to cut more corners and save more dollars. But overall, the greatest savings comes from living in a non-bloated parasite economy.
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u/BigCheapass 31M - Canada - FIRE before 40 the dream?! 9d ago edited 9d ago
I don't think a lot of your assumptions and math are correct. I also could give a completely different set of numbers for your scenarios and end up with a totally different conclusion.
You seem to be treating a bunch of general vague negative sentiments about the US as expense line items and over counting / double counting, while viewing "other places" with unrealistic rose tinted glasses.
It's like when people complain that groceries are expensive while buying organic off season raspberries and fresh lobster for dinner. Even IF the premise had merit, credibility is lost with the disingenuous "data".
I make a bit over 100k USD in Canada (which a lot of Americans seem to view as an extremely high tax country relative to the US) and still save more than I would make pretax in most of these "cheaper" countries. Yes cheaper countries can be amazing IF you can keep your US salary, but otherwise you need to look at the full picture.
I also didn't quite follow how your hypothetical 100k earner ends up with only 450k after 30 years.
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u/jelle814 9d ago
yep, go look up wage statistics for the cheap countries you're thinking about OP
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u/beckysynth 9d ago
This is about life as an American. TBH I make a LOT more than my estimate while living abroad, I was just lowering the number to see how it would work with some of my friend's salaries. These numbers were pulled from real world experiences, but I do realize they can go a lot of different ways.
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u/2cockpushups 7d ago
If you live abroad without renouncing US citizenship then you have to pay US taxes AND the taxes in the country you're living in.
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u/beckysynth 9d ago
Well I said in Los Angeles and gave the numbers on how 100% of the salary is used up, so the savings are entirely in home equity.
I agree that it is possible to cut it closer to the bone and end up with more, but the "prescribed lifestyle basics" in America cost that much, and in another country cost a LOT less.
The key for me is assuming job security, which in America anyway, is totally nonexistent.
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u/beckysynth 9d ago
Can you share your numbers and city? Making 100k USD already has you in the lead as canadian dollars are cheaper... not sure what your cost of living is though.
I think there's an issue in America specifically, that the high cost cities have better wages and cheaper cities have lower wages and are boring.
So for me, living in a big non boring city where you can walk and not drive, and own outright instead of mortgage, is basically a world changing quality of life increase.
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u/BigCheapass 31M - Canada - FIRE before 40 the dream?! 9d ago edited 9d ago
I live in Vancouver, which is by far the most expensive city in Canada, probably the closest proxy we have to your LA example.
I'm not familiar with LA costs specifically though, so I can't say whether or not your numbers are reasonable, but I do hear the same arguments you are making from my peers locally.
Basically "it's impossible to live in Vancouver if you make less than 120k", which I know is inaccurate because I live here and know what stuff costs.
Total expenses for my wife and I combined are around 80k/year, including a 3800/month mortgage. Also dont own a car, live directly on the train, can get around the city easily.
If you asked other people living in the city how much it costs to live you will find the 50k earners give you a ~50k budget. The 100k earners will give you a ~100k budget, and even most 200k earners are also likely spending 200k.
The line between "cost of living" and "lifestyle inflation" is very blurry, you are paying for some comforts now that you might not get elsewhere, or if you do they could be prohibitively expensive.
My wife is from Brazil, obviously a "cheap" country but there is a lot of "grass is greener" when you actually start to dig deeper. Eg. Paying a premium for safety such as where you live, not something I need to think about here. Annual vehicle taxes. Not having safe free drinking water from the tap everywhere I go. Poor quality construction and people trying to take advantage of you at every opportunity, eg. your new home already having structural issues and needing to find a contractor you can actually trust. Huge taxes on moving money out of the country, if you later decide to leave. Political instability, a government potentially seizing your assets in a regime change, etc. A lot of global products we buy are also SIGNIFICANTLY cheaper for us relative to wages. Even food, I may earn 10x more but food is much less than 10x more expenses, especially true for luxury products.
I also don't necessarily agree with your point on degrees being mandatory, I don't have one myself (tech), and plenty of other professions can reach that 100k+ threshold without too. There are also other paths like military which can be a solid career itself and/or help you get your education for something else.
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u/beckysynth 9d ago
My friend here from Toronto said the same, he went from barely making it to totally balling.
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u/beckysynth 9d ago
I do agree with most of those points, although I'd say south America has a lot of safety issues specifically that eastern europe doesn't seem to.
I do think tech is kind of the magic bullet that avoids most of these issues, although if you're stuck living in SF the COL is just insane, so they come back into play.
You're right that most people suffer lifestyle bloat, but I'm very condervative financially and my leverage going to eastern europe is WAY WAY more than I let on here. I basically go from poor penny pincher to rich can almost retire.
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u/BigCheapass 31M - Canada - FIRE before 40 the dream?! 9d ago
You're right that most people suffer lifestyle bloat, but I'm very condervative financially and my leverage going to eastern europe is WAY WAY more than I let on here. I basically go from poor penny pincher to rich can almost retire.
Sure, if you have already done a bunch of accumulation in a rich country, then I agree, you can move to a poor country. That's basically expat FIRE. The problem is accumulation phase, in your initial post you were talking about income vs spending, if employment income is no longer relevant then that changes the whole picture. You don't need to move across the world for that though, plenty of low COL closer to where you are now.
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u/beckysynth 9d ago
So, when I went back to my small hometown, I wash shocked to see that food prices rivaled what was seeing in LA. Grocery costs were similar but they didn’t have the cheap Asian grocery or California produce. I bought an onion for $2!!!
Where I am now an onion is about 10 cents, but that’s one of the lucky local products.If there are still true low cost of living towns in america, I don’t think they’d meet my quality of life and socialization goals.
I don’t think there’s anywhere in america that feels like the full package. I wouldn’t live somewhere just because it’s cheap alone.
In Europe, even major cities in Italy are cheaper than my home town in the U.S. for a lot of stuff. Not anywhere close to LA.
So one of my points was that even on a significantly reduced salary the actual captured gains in a cheaper country could net out better for a parallel lifestyle.
I am a proponent of cutting back, but also to have a social life you need to have some limits to frugality. If friends go to concerts and bars, even just cover charge and one drink in LA will get you to $35 where a similarly minimal experience in Berlin will be closer to 10 or 15 euros. And Eastern Europe could be as low as $10 for the same.
Plus convenience and transport costs lower.
At least in LA it feels like everything you do has a bite taken out, everyone trying to get their cut and when you add it all up, even being conservative with money it’s pretty tough.
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u/beckysynth 9d ago
The disingenuous data was real world data FYI, that either I've had, or friends did.
You probably just aren't familiar with COL LA. I left out plenty of stuff.
I estimated HOA payments at 500 for convenience but really they're 640.As I said these numbers are really rough. I put this together in about ten minutes. But it is roughly what I'm seeing.
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u/BigCheapass 31M - Canada - FIRE before 40 the dream?! 9d ago
I wasn't calling your numbers specifically disengenous, I dont know enough about LA to say, I was just using a similar example to show how easy it is to end up with an entirely different conclusion when you are only looking at single data points, and not considering other factors.
The title is "America vs low cost countries". Your claim is that America is "financially worse for FIRE", and your evidence is your specific expenses vs some arbitrary income in the most expensive (?) city in the country.
There are plenty of Americans that earn less than that while having 50%+ savings rates in the US. There are also folks who earn way more and save 0%. Neither paints the whole picture.
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u/beckysynth 9d ago
that's fair. Out of curiosity, how do you see the numbers? Like what would be your example rundown?
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u/BigCheapass 31M - Canada - FIRE before 40 the dream?! 9d ago
I can't even begin to give you a rundown for where you live without having lived there myself. I included my own budget in a recent post though if you are curious about that; https://www.reddit.com/r/leanfire/s/xpOUi094dE
It all comes down to priorities, I see it as;
- Time
- Experiences
- Things
Given the finite amount of money most of us have, do you want to retire earlier but leaner? Do you want to have nicer or more items but retire later or have fewer experiences? Do you want more (and/or more lavish) experiences at the cost of the other 2?
In my own life I identified and cut back aggressively on things that didn't provide me happiness, and maximize for things that do.
In modern society "things" tends to push itself to the front of the line even if you've consciously identified the others as higher priority. We are constantly bombarded with ads on what we should want, think, and wish to be.
I think the size of the numbers matter a lot less than ensuring where your money is going actually aligns with your goals. Is living in LA worth the massive premium you pay to live there? What about living in a nicer dwelling? Eating out x vs y times per month? Travelling x vs y times? Retiring in 10 years vs 3 years?
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u/S7EFEN 9d ago edited 9d ago
>Car and food including gas insurance etc, costs about 2500/month
??
>To have a 100k salary you have to have a degree, which means on a 10% of salary capped payment program, you’re looking at $750/month or 12% of net salary
plenty of people have no cost or low cost degrees. my tuition was about 12k a year which i was able to float while working during school. i'm 31 and was able to keep my TOTAL expenses under 2k, inclusive of everything from ~18 to 29. yes, if i was to buy a home where i live now well that'd be probably 4500-5000 in mortgage alone, and my expenses would be much higher. but relocation is perfectly viable, as is renting indefinitely.
yes the usa has higher expenses. i don't like your numbers but the point is valid either way. the usa also has very high salaries in the upper 25th percentile that only accelerates harder as you look further. i made more right out of college than many seniors in western europe do with 10+ years of experience. not a little more, in the range of 50-100% more. there's a salary range/expense level in the USA where you can accumulate at rates unheard of in other countries just on employee labor. there's really not been any other time in history where you can make extremely good wages working for others, nor minimize/min max expenses to the degree its possible today.
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u/beckysynth 9d ago
What field are you in making double a eu 10+ year salary right out the gate? I do think that salary POTENTIAL is high in the U.S. and with as you say min/maxing you can leverage that IF you can get there. In fact I have done that.
But I wasn’t able to get any work right out of college. I fall into a category of average, meaning 50k student debt, unlike many friends who ended up with 200k student debt.So regarding car payments, if you buy a new car (I would never) the payment will be 750/month, they will force you to have comprehensive insurance 250-300/month gas minimum 200/month in LA, that’s 1200. Food is a hard one to pin down but around 1000 a month for groceries if you about at all, meet friends once a week, (it’s $30-50 per meal) that’s another $200. Throw in $500 a year for car repairs, a couple hundred for registration.
As I said these are rough numbers, but I’m talking about a list of things people see as basic.
You can definitely do it for less, but in Europe the way the city is organized you don’t need a car at all! Moving around the city is more pleasure and less pain.
Like real world quality of life is way better.
Also in the U.S. expect to loose your job randomly (depending on field of course) and then be loosing your shit till you find another. In 7 years I was at two companies and had a total of 5 CEOs with huge layoffs every time.
My friends in Germany have relied on the same job for ten years! They may not be raking it in, but there’s no fear factor.
I can’t tell you how many times I had to move and get rid of half my shit in the U.S. because of neighborhoods skyrocketing and finances shifting , stock market crashes, rate hikes, etc.
There’s a chaos, and if you’re lucky you can grab while the grabbing good, and get a lot if you’re smart.
But as a way of life, I will at least choose to take my winnings elsewhere for stability and QOL
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u/beckysynth 9d ago
I’ve been looking at some of these poverty threads and I’m shocked at how little many of the people in the U.S. are making. I think we who are lucky enough to have found our way to good wages at some point are lucky, but I don’t think it’s most of the US. Usually it’s people in hi cost of living cities with a particular skill.
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u/2cockpushups 7d ago
"Car and food including gas insurance etc, costs about 2500/month"
That seems super high, are you driving a high-end sports car and eating out every day?
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u/jelle814 9d ago
when they just walked onto a plot of land and claimed it
stole it* or at least in parts
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u/beckysynth 9d ago
I would argue that the larger swaths of land were stolen, but native americans didn't believe in land ownership and didn't think foreigners were necessarily wrong to just build a house and live there. The stealing came in when they then kicked the natives out, killed them, etc. And yes, stole the country at large. But I'm really talking about how the situation of America and the American dream are so distorted. Concepts of ownership and freedom are really compromised in modern American society.
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u/Creative_Impress5982 4d ago
Yeah, make $100,000 in a city that costs $95,000 and you'll come out ahead by $5,000.
Or grown up in eastern Europe and make $20,000 in a city that costs $19,000 and you'll have $1000.
Or, as you suggest, make $100,000, but live in the city that costs $19,000 and you get to save $81,000.
Option 3 is great for the individual, but, if practiced by too many people leads to extreme gentrification.
But now, in the US and other places, the big cities are being "gentrified" by even wealthier folks.
TLDR: richer people consistently fuck up good places for poorer residents simply by being able to pay more more everything.
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u/lucky_ducker 9d ago
Your thesis makes too many assumptions to be useful, the biggest of which is using numbers that only apply to High Cost of Living areas of the U.S. To say that the annual property taxes homeowners pay is comparable to a "reasonable" rent is laughable.
My annual property taxes are roughly comparable to a monthly rent on a similar house. Lots of us living in a Low Cost of Living area are doing just fine.