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Chapter Two: Lesson 2

As their incomes go up, their expenses go up as well.

The number-one expense for most people is taxes. Many people

think it’s income tax, but for most Americans, their highest tax is

Social Security. As an employee, it appears as if the Social Security tax

combined with the Medicare tax rate is roughly 7.5 percent, but it’s

really 15 percent since the employer must match the Social Security

amount. In essence, it is money the employer can’t pay you. On top

of that, you still have to pay income tax on the amount deducted from

your wages for Social Security tax, income you never received because

it went directly to Social Security through withholding.

Going back to the young couple, as a result of their incomes

increasing, they decide to buy the house of their dreams. Once in

Assets

INCOME STATEMENT

BALANCE SHEET

Liabilities

Income

Expenses