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 Post subject: Light at the end of the tunnel?
PostPosted: Wed Jul 11, 2012 1:16 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
Live in Sweden. Really like "GRS mentality". Me and fiancé is mid 30:s. Booth of us worked a couple of years after high school before we spent 4-5 years at university. She teacher, me economist. She is older and finnished before me. Ended up getting kids (twins) while I was still studying. Had a couple of wonderful years with loads of time with the kids, but financially challenging. The family economy (rent, food, electricity, broadband, kids and so on) is built around a strict budget and a jointly owned account. We pay the same share of the this budget as our share of the income at any given month (we get payed once a month). We had this system from when we started living together and you should not fix what is not broken. Since we partly have distinct individual economy we seldom (never) argue over money.

2008-2010 I studied, she was home with kids and later worked part time and stuied on her own while I was home with kids. We had a year parental leave each. This worked out thanks to the Swedish wellfare system that gives universal grants to newborns and children in general (yes, even to millionaires). We will pay it back with taxes in the future. Even so my fiancé has managed to build up a emergency cushion of some $9.300 and is paying off her $35.000 student loan (1,5% interest) at minimum pace. Steady as she goes.

When I started working again I had a $3.500 interest free loan to my dad, $4.600 CC debt and $39.300 student loan and no emergency fund what so ever. In one year I payed off CC loan and loan to dad, got the student loan down to $37.100 (at 1,5% I only pay minimum $140 a month), built a EF of $ 2.000 and even though we bought a decent family car for $10.000 that I partially financed with a car loan (5,95% interest), I will pay off the remaining of that loan this month thanks to some good extra income. So, maginal outgoing interest = 1,5%. Marginal ingoing interest (best savings account) = 2,2%.

Today
I was never very far down a dark hole, but right now I enyoj feeling the light at the end of the "bad debt tunnel". To sum it up: we take home about $7.500 a month salary and benefits. Good health care is tax financed, as are dental for children up to age 20. School, even the best universities are free so no need saving for that. Public pension plus what our employers pay will give a decent pension, even though we need to save up for a little "additional pension luxury" later in life (my defined premium is about 24,5% of my pre tax salary, fiancé a bit lower). Keeping some of the values of the college student as far as economy goes, we live pretty simple but have a great economy once we booth work full time. The monthly family budget, including cheap $950 rent (900 square feet decent three room apartment in very nice area), $700 for food, $220 kindergarden, a little saving for the kids, broadband, electricity, newspapers, kids stuff, insurance (life, car and kid/accident) and the car adds up to about $2.600-3.000 a month. Nowadays, that leave us with about $4.500-4.900 a month (about half of that each) for personal stuff like clothing, student loan, phones, fun - and alot of saving. That feels GREAT. We save $285 a month for vacation in a separate account, and the rest in individual accounts.

Goals
Renting is great since it is cheap and we don´t really know were we are going. We can get a bigger apartment in the area, as chep rent, but the now fast growing savings accounts is probably also to be seen as down payment on a house, if we feel we want to go down that path. Housing is EXPENSIVE though. Apartments in our neighbourhood easy sell for $400 per square feet. A decent suburbia house with long commute is at least $300 per square feet, and attractive area with short commute probably more like $500-600 per square feet. A nice small studio in central Stockholm can go for $1.330 per square feet! You need a 15% down payment and beeing conservative, I would like to have more. Renting is cheap!

All this said, my goal right now is to get the equivalent of one years salary on my savings account. Tough goal that will take some time. Meantime, I intend to live a relaxed, fun life with my (a bit crazy) young kids.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Wed Jul 11, 2012 2:45 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
I might add, that differences in Sweden from US is 25% VAT on everything but food (12%), public transport and books (6%). Financial services is 0% VAT.

Petrol/diesel is about $7,50 per US gallon right now, was $8 6-12 months ago.

Income tax has come down quite a lot last couple of years. Most income tax is local (municipal) and differ a bit. I live in a very low tax municipal and have a normal income for someone mid 30:s. I pay about 22-23% income tax in total. On salary over about $5.000 a month there is a government income tax of additional 20% (marginal rate can be 45-50%), and another additional 5% (marginal tax rate 50-55%) on salary over about $6.000 a month.

Every child (or their parents) age 0-16 get a "childrens grant" of about $160 tax free per month. 16-20 the kids get the same amount if they attend high school.

If you attent college, wich apart from litterature is free, you get a "student grant" of about $430 per month tax free, 9½ months a year. You can borrow another $860 a month 9½ months a year for maximum 12 semesters. Repay is a annuity untill you are 55. Interest rate right now is 1,5%. Will go up when interest rates do, but slowly and will always be very low.

Capital gains tax is 30% flat. A "investment savings account" just saw the light. Money put in there is taxed 30% of reference interest rate. With todays low interest rate that means you pay about 0,5% tax on capital per year, nothing else. You can add as much as you want, and take out as much as you want at any time. Kind of sweet.

Nowadays there are no inheritance tax, no tax on gifts (you can give anyone infinite amount tax free). No taxes in wealth (taxed before), and property taxes was slashed to minimum some years ago.

Corporate tax is about 25-26% of profits.

Deductable retirement is now only about $1.700 per year maximum, and those money are locked up untill you are 55. If you pay marginal tax rate of 50% it makes sense to sock this away though since you problably pay less tax after retirement - especially if you save up alot in tax free accounts and therefore have a very low income (capital gains excluded).

People are payed monthly - always.

2/3 of mortages in Sweden is variable interest rate (3 months mostly). Historically this has been the cheapest way to go so most peple do this as a rational choise, it is not seen as a risky move. Interest rates are low, central bank reference is 1,5% and mortgage rates is 3,75-5,0% (3 months - 10 years). I don´t think you can take a mortgage in Sweden >10 years. If you end a fixed loan in advance you have to pay difference between the rate you have and todays rate if that is lower. And no, you don´t get money if interest is higher today....


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 2:28 am 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
The car loan is finally payed off a couple of weeks ago! We bought it for $10.400 and I borrowed about $4.160 wich I payed off in about 15 months (payed down other loans during this time aswell). I just saw an ad for a similar car, same year but with 60.000 miles on it (our is 34.000) for $9.400. Looking at that depreciation it feels good to have bought a decent, older Toyota.

Now my goals are to get the EF to 3-9 months of income (this will take years), and $2.250 for my share (buying with relatives) of a boat this spring. Untill I have a decent EF, I will only save a little for retirement - thinking of about $40/month in an indexfund just to get started. In a couple of years my goal will be to save $150-300 per month in index funds for retirement (tax along the way, tax free withdrawals).

I just got last years public pension payment to my accounts; $12.750 premium and revaluation (5,2% in 2012) on the "pay as you go" part, and $1.390 to the account where I invest in funds on my own. In total, the accounts now hold $92.800. The part I manage on my own has been givning me a decent 7% a year on average the last decade. The risk with this pension is that the "pay as you go" part can be revalued to balance the books on ingoing and outgoing to the system. Retirement age probably will change in my lifetime, but even though standard age now is 65, you can retire as early as 61 so another 2-3 years is no problem from my point of view. The longer I work, the higher pension. Simple as that.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 9:10 am 

Joined: Mon Nov 26, 2012 10:18 am
Posts: 30
I bet it feels good to have that car paid off! The economic system of Sweden seems very interesting. How do you think it compares with the US? Better? Worse?


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 10:10 am 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
annibe11e wrote:
How do you think it compares with the US? Better? Worse?

If you would have asked me 8-10 years ago I would have been more sceptic towards the Swedish system, and more positive to the American. The systems are, and have been the last 90 years - very different. The Swedish system changed a bit 1991-2006, and alot since 2006.

What few people, even in Sweden, know is that most wealth transfers in Sweden (probably 1/4 of GDP) is not from rich to poor, but "demographically" from working people to non working people like children av elders. The average Swede pay no taxes and get loads of benefits at the age of 0-20 and >65, and the other way around 21-64. The system was created by social democrats 1930-1991, but since the power shift (to center right governemnt) in 2006 the system is just adjusted - not scrapped. My conclusion is that most people like the general principle of the system.

Some of the norms in the system might seem "socialistic", but could be argued to strenghten individual freedom and competition (even by me, who voted for the center-right government). A HUGE difference from the US is that Sweden is among the most secular country in the world. More focused on individual rights rather than "family". Public pension, free school, free health care and free care of elders makes individuals less dependent on family, friends and so on (we do have family and friends though :lol: ). Much of the differences between US and Sweden stems from this, and before dismissing it as "bad", you should take into account that a majority of the people like it that way. It is a different mindset.

With 80% of workers organized the unions and their http://en.wikipedia.org/wiki/Saltsj%C3%B6baden_Agreement is strong. Collective bargaining of salary have the effect that strong corporations live and thrive while weak ones are forced creative destruction. In the right dose, done right, this forces international competetiveness. This worked well in Sweden 1945-1969, not so good 1970-1992 and then again pretty good from the early 1990:s. In the slump 2007-2009 a new model saw the light of day, when for example Scania made everyone (even CEO) to work 80% time and got 90% of salary for a year or so. The last 20 years the Swedish economy has gained ground as far as global competetiveness goes. From 20:th place and falling to top three and gaining ground. My opinion is to not change what is not broken.

The health care system of Sweden I mean is superior to the US. Everyone is covered (excellent quality health care) for the cost of about 10-11% of GDP. In the US quality of health care is generally excellent, but not everyone are covered and the cost is eye ewatering 18% of GDP and rising. For me this is not about religion, politics or principle - but economy. I pay about 10% income tax to my local regional government, whose principal responsibility is helath care. As stated - everyone is covered. My kids (who don´t pay tax) and the guy sleeping on the street.

The public pension system of Sweden, as many (most) is a result of old sins. Even though it is not good at all, it is better than most. During the 1960:s the governemnt promised people excellent pensions but did not fund it. The system was about to collapse and had a total overhaul in the 1990:s. The big thing with the reform is that the payment to the system is defined (employers pay 16% on top of salary), and if the inflow is not enough to meet issued promises, the payout is decreased. The system automaticly balances itself wich is great for the public finances. Principally I like the notion of "public pension". Since it makes competition though low pensions impossible, it gives corporations equal conditions (no race for the bottom). I would like to have a funded, premium based system though. Like the other account, that recieves 2,5% of salary. If so I would not have to pay 18,5% on top of salary, but more like 7,5-8,0%. As stated - old sins. US also have "old sins". Paying cops low salary but giving them 50% of salary pension after 20 years seem... 1940:isch. And also erratic and potentially extremely expensive.

Another thing I like about Sweden is the "credit rating". Or lack of it I should say. If I apply for a credit card or loan the statement will tell my income last three years, if I am married or not and if I have during the last five years not payed bills or debt. Thats it. If you want to "increase" your "credit score" - make more money. Reading about you guys taking on debt you don´t need to strategically inhance credit score seems horrible.

I like americans "just do it" attitude. And some thing is alot cheper in the US. Food, clothes, electronics, housing, cars... This gives some flexibility.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 1:41 pm 
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Posts: 5387
Northern light wrote:
Much of the differences between US and Sweden stems from this, and before dismissing it as "bad", you should take into account that a majority of the people like it that way. It is a different mindset.


In the 1970s and 80s many Americans thought Sweden was a communist country. This was probably partly because it was not too far from the Soviet Union geographically and partly because it openly opposed the Vietnam war and accepted American draft dodgers. It was also not a member of NATO like most other European countries. That perception was completely wrong at the time but persists somewhat today. If you ask the average American they will a) confuse Sweden with Switzerland or b) think it is communist. Americans have a hard time believing that people would vote for high taxes to pay for social welfare programs.

But the reality is, Sweden is probably far more democratic than the US. People like the social welfare state and they consistently vote for it. They might want reforms and might recognize that parts of the system are unsustainable under changing socioeconomic conditions, but they don't want a system like ours. Northern Light describes his support of the center-right government while also telling us how great teh Swedish Social Welfare state is.

Northern light wrote:
Another thing I like about Sweden is the "credit rating". Or lack of it I should say. If I apply for a credit card or loan the statement will tell my income last three years, if I am married or not and if I have during the last five years not payed bills or debt. Thats it. If you want to "increase" your "credit score" - make more money. Reading about you guys taking on debt you don´t need to strategically inhance credit score seems horrible.


But our system is really not that much different. Really. Yes, people worry about their credit rating and their score but, for the most part, that's just because they are being "sold" something. Things used to be here the way you describe them in Sweden. We ended up with the system we have because it was inconsistent and unfair here when every lender applied different criteria and rules. And unfortunate by product of standardizing credit reporting here has been consumers becoming obsessed with their score. While it is true that young people often have trouble building credit and do things to help build it, most of us truly don't do anything. I'm not saying our system is better or worse than Sweden's, but I don't think it is as different as you think.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 3:45 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
Sweden never was a communist country, even though it was "very much social democratic". All men served in the conscript defence force for 8-18 months untill the late 1990:s, and the enemy was always to the east, and was alwys red. To understand the social democrats relation to the Swedish communists, please read about http://en.wikipedia.org/wiki/IB_affair. The truth is the social democrats of Sweden was more afraid of communists than right wingers for the most part of the 20:th century.

The 1970-1990 was from my point of view dark years with irratic regulations and crazy taxes. In 1976 Astrid Lindgren wrote the political pamphlet of the witch "Pomperipossa" when realising she was about to be charged 102% tax. The finance minister first claimed it was impossible, but later admitted she was right. That must be some sort of record of 1) tax rate 2) complex tax system. A fun detail is that when Astrid was to get Pomperipossa published, she called the editor of a newspaper and said: "hello, this is Astrid Lindgren, former social democrat". The tax system was completely changed in 1991.

If someone claims Sweden is a communist country it might be interesting to know that an extremely small part of Swedish trade and industry is in public hands, lower than the US. The school voucher system so controversial in US is up and running since 1993 here. A big portion of elementary schools are profitable private enterprises (but publicly funded). From this year even the annual vehicle inspection can be made by a private business.

Today I would say the biggest issues with "the swedish economic model" is a inflexible labour market. As stated by the World economic forum, Swedens 3:rd place in global competetiveness is as of today held down by a rigid labour market. Senior employees have a rigid protection against beeing sacked just by beeing senior and so on. When discussing "credit score" it is worth mentioning that having a permanent employment is close to godlike, even though younger employees often switch jobs and have limited security through their employment. Another issue here is regulated residential rent which makes the potentially flexible rental homes rigid. People in the US has an impressive ability to move far away for work opportunities, which swedes do to a lesser extent - or even can´t because of lack of reasonable accommodation. Residential rent needs to be priced by the market.

Another thing is the maginal tax rate (not capital gains, wish has 30% flat rate). You pay progressive tax spanning from zero (<$2.810/year) up to about 23,5% at $ 62.350 where I live. The marginal tax rate at the top is about 28%. Now, between $62.350 and $88.400 you pay additional 20% (marginal 48%), and over $88.400 you pay another 5%. Where I live this means marginal tax rate of 53%. In some municipalitys with higher taxes that is 55-57%. I have no problem with progressive income tax, but marginal tax rates of over 40-45% is a hard sell, and might even be contrproductive. My brother runs his own business as a IT consultant (on his own). Even though he is in his mid 30:s, he takes 6-10 weeks unpaid vacation since he feel working more don´t pay that much after taxes. The salary we are talking about here is at a lever where teachers, health care workers and so on loose incentive to work overtime - or even full time. The first step as far as I am concerned would be keeping the (inflations adjusted) brackets, but instead of 20+5 tax rate make it 10+10.

Third. Corporate profits are in reality taxed twice if payed in dividend. First with 25% corporate tax, then with 30% capital gains tax when payed as dividend to shareholders/owners. At the same time you pay 30% on capital gains, 30% of capital losses are deductible. The gvernment tax profits and subsidize indebtedness. And we wonder why there is a financial crisis? Housing debt has been growing 8-10% 1998-2008, and still grow 4-6% annually even thoug inflation is 1% and income is increasing by 2-4%. Household debt is now 160% of income, a historically high level. The average amortization time is 80 years for houses and 120 years for apartments (!). We are closing in on a house bust. In the long term, we should be lowering the tax rate and tax deductions from 30% to 20%. Not popular along indebt households but all the western world really need to "deleverage".

As stated, the Swedish public pensions is, even if "balanced", not very good. Pension lobbyist now talk about merge the two systems in order for seniors to basically steal money from young people in order to give them a more stable, higher pension. The logic thing is to do the opposite. The 16% I pay on top of my salary to finance pensions beeing payed out today (against an IOU to my kids and grandchildren) should gradually decrease over the next decades. This would mean gradually diluting "old pensions". At the same time the payment to the individual funded account (2,5% of salary) should increse at something like a 1/3 rate. The reality today is that young people pay massive pension costs in order to pay pension greater than what they will get - to people who did not finance pension for themselfs - or their parents.

Sweden, along the rest of the western world really need to reform the function of government deposit guarantee. Today I can deposit up to €100.000 ($130.000) in an guaranteed acount that gives me 3,15% gross interest rate (tax is 30%). The national bank prime rate is 1,25%. People get mortgages (three month fixed) under 3%. The financial institution that pays me 3,15% clearly takes risk in order to make a profit. This shows the system is skewed. Massive risktaking should not be subsidized by the national bank/government.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 4:38 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5387
Northern light wrote:
If someone claims Sweden is a communist country...


Just to be clear - I am not making that claim. As you know, I used to live there and maintain fairly close ties still. I'm certainly not an expert on the politics, economy, or society but I do hear things from friends on a frequent basis.

What I was saying was that back in the late 70s many Americans definitely viewed Sweden much like a communist country. Most knew it was not Soviet, but they certainly thought it was nearly communist. Really, Americans knew very little about Sweden beyond Bjorn Borg, meatballs, and mumbling Muppets. Unfortunately they know very little more today.


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 Post subject: Re: Light at the end of the tunnel?
PostPosted: Thu Dec 13, 2012 5:13 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
DoingHomework wrote:
But the reality is, Sweden is probably far more democratic than the US

I would say yes - but it is in many small details. First of all, a two party system is just one more party than China or North Korea. Has the people got a choise? Well yes - but bare minimum. From my point of view, the overall political opinion (main stream) in the US always seems to end up almost binary. The (horrible) teaparty movement is the short lived exception that confirms the rule.

Swedish political life is not based on consensus, but with eight political parties in parliament and four of them in the minority government coalition, multiple different opinions are always heard - and get oppurtunity to communicate it to the general public.

US is built on 13 states that at the time of independence had a hard time to agree on how to form the union. The focus seemed to be room for every states character, and the right to represent it at the federal level. Even though the states within US still is different from one another, people seem to identify themselfs more as "american" than for example "sprung from Utah" (opposite to the non federal EU). Today you seem to be able to gather a majority of http://en.wikipedia.org/wiki/White_Anglo-Saxon_Protestant with relatively similar values in more or less every state in the federation (I'm exaggerating a litte bit to make a point). For me this seems like a pretty harch enviroment for minority ideas - which occasionally is the better one and should be able to, if not change policy - at least influence it.

How about letting at least 1/3 of the different parliaments (local and federal) seasts be distributed through proportional voting?


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