40% of an individual’s income is a critical number.
When housing takes up +40% of someone’s income, it is an alert that they are dangerously close to being homeless. The smallest extra bill or cash flow hiccup is likely to get them evicted.
When income taxes eat up +40% of someone’s income, they will scramble and find ways to reduce it. Across the globe, governments rarely collect on tax rates above 40% because citizens will suddenly go very far out of their way to avoid it; when they did not at only 35%. But at 40%, people will hunt for any loophole or deduction, work less to get below that threshold, or move to a different jurisdiction.
When food takes up +40% of enough people’s income, they will collectively revolt against the government. There are many examples, but the French Revolution and the more recent Arab Spring revolutions both had rising food costs as a critical factor in building dissatisfaction with the current government.
There are several important ratios for personal income. Financial literacy includes knowing and following certain ratios that to lead toward financial success. For example, people who are able to retire early, in comfort, save 20% or more of their income. Exactly how much are you currently saving? How many other income ratios do you know and follow?