Category: Money

1. Your personal federal and state income tax rate

It’s interesting to see just how much you will pay in income tax based on your annual income. The Tax Foundation does a much better job of explaining this than I can, and they have helpful graphs so check their pages out for federal and state taxes.

2. What “standard deduction” and “personal exemption” mean and how they work

A standard deduction is a set amount of income that you don’t have to pay taxes on, and depends on your filing status. In 2017, this was $6,350 for single people and $12,700 for married people filing jointly.

A personal exemption is also a set amount of income you don’t have to pay taxes on, but this does not depend on your filing status. Everyone gets a personal exemption of $4,050 for 2017.

This means that if a single person made $50,000 in 2017, after the standard deduction and personal exemption, they would only need to pay taxes on $39,600.

3. How to reduce the amount of taxes you pay

The majority of Americans could be paying less in income taxes at their current income levels. Only 10% of 401(k) participants contributed the maximum amount to their 401(k) accounts in 2016, meaning 90% of people could have reduced their taxes by contributing more.

(A 401(k) reduces the amount of taxes you owe, similar to a standard deduction, and your earnings are invested and allowed to grow until you retire. I’ll probably do a full blog post on 401(k) accounts soon)

Using the 2017 rates above, if a single person earning $60,000 per year didn’t contribute to their 401(k) at all, they would pay $8,139 in federal income tax (on $49,600 of taxable income after their standard deduction and personal exemption).

If the same single person earning $60,000 contributed the maximum amount of $18,000 into their 401(k), they would only pay $4,274 in federal income tax (on $31,600 of taxable income after their standard deduction, personal exemption, and 401(k) contributions).

This person in scenario #2 just gave themselves a $4,000 raise by maxing out their 401(k). Not bad!

There are many other ways to reduce your taxes, such as contributing to an Individual Retirement Account, a Health Savings Account, taking advantage of tax credits, and others.

4. What your tax dollars are used for

It’s easy to think that you don’t benefit from paying taxes, as our benefits are often indirect or we won’t see them until we retire. A significant amount of your federal income taxes are used for defense and military (not getting invaded is cool right?), healthcare (not dying of rampant disease is cool right?), and social security (not making Grandpa work is cool right? You’re welcome Grandpa).

After those big three, there is also a certain amount used for infrastructure and transportation (did you use a road today?), education (you’re able to read this right?), and science/medical research (which has given the world lots of cool stuff, including camera phones and wireless headphones, among others).

I can drive a car from my house in Dallas to my hometown in Minnesota 1,000 miles away on roads that I could never pay for myself. At a low estimate of $2 million per mile of interstate highway, those 1,000 miles would cost 2 billion dollars to create. Now those few thousand dollars I pay in taxes doesn’t seem like that much.

5. You have to pay your taxes

At the end of the day, we all want to reduce our tax payment as much as legally possible, but we don’t want to avoid paying the taxes we legally owe. That would not be cool.

#MoneyGoals

(Pictured: The Washington Monument as seen from the Lincoln Memorial, May 2016)

On December 26th, 2017 I went on a walk with my mom and sister. The high for that day was -4 degrees Fahrenheit, with a low of -15 degrees and the wind made it feel another 10 degrees colder than that. According to the National Weather Service, frostbite can occur within 5 minutes at temperatures between 0 and -19 degrees Fahrenheit.

After a few minutes of being outside, I could feel my eyelashes sticking together every time I blinked. Out of the corner of my eye I could see a coating of ice forming on the inside of my sweatshirt, the moisture from my breath frozen within seconds after leaving my lungs. While the signs of extreme cold were apparent, I was toasty warm with every inch of my body (except my eyes) blanketed in multiple layers of clothing.

Preparation is vital when living in a severely cold and snowy place like Minnesota. Shoveling your driveway early in the morning so you can get to work, turning your car on 15 minutes before you leave to let it warm up, and spreading salt on ice so it melts before someone slips on it are common practices. These proactive measures make future life easier, safer, and more comfortable.

Likewise, preparing for your financial future can greatly improve your future quality of life. Saving 20% or more of your income, contributing to an IRA, and taking advantage of an employers 401(k) match will make your financial goals and retirement planning feel like a warm car in a snow-free driveway.

Short-term preparation can just as beneficial. If you know you are going to work on Monday, you can prepare by making your lunch on Sunday night. If you are traveling, you can plan ahead by checking out public transportation options at your destination instead of relying on Lyft or a rental car. These small preparations add up, and played a large role in keeping my personal spending under $9,000 for 2017.

How are you preparing for the future?

#MoneyGoals

Here is every dollar I spent in the last year:

Rent – $4,874.00

This breaks down to an average of $406.17 per month. Achieved by living with 4 roommates for most of the year, and 5 roommates for a few months in the summer.

Cell Phone – $152.63

Average of $12.72 per month. I use the service provider TPO, and I also didn’t buy a new iPhone (still rockin the 5c).

Groceries – $1,475.42

Average of $122.95 per month. I buy lots of bulk brown rice, beans, lentils, fruits and vegetables. I detailed my favorite go-to recipe here, and there will be more recipes to come!

Dine Out – $146.78

Average of $12.23 per month. This is the most noteworthy number to me, because 140 dollars is more than it costs to buy groceries for an entire month. Less than 10 meals at restaurants over the last year cost more than approximately 90 meals and snacks when I buy and prepare my own food.

This is why I rarely dine out. It’s almost ten times more expensive than cooking yourself, and is usually less healthy as well.

Travel – $948.39

Average of $79.03 per month, although almost all of my travel expenses came in March and May for my trip to Australia. There were other expenses that landed in the groceries/dine out/other columns that were directly connected to my traveling and I wouldn’t have spent money on otherwise. A couple road trips to Austin (July) and San Antonio (September) rounded out my year in traveling.

Other – $1,103.16

Average of $91.93 per month. I will probably break this “Other” category into more specific categories for 2018 to get a more accurate picture of my miscellaneous expenses. The big expenditures for 2017 that landed in this category were a new bike and parts (~$450), gym locker and membership fees (~$100), wedding/Christmas/graduation gifts (~$200), and this blog (~$100).

I will definitely start a “Transportation” column to track my bike and bus expenses for next year, so I can compare them to an average American’s car-based transportation costs.

TOTAL – $8,700.38

Average of $725.03 per month. This will most likely increase in 2018, as my housing situation might change after graduating, and I will be lucky to keep my housing expenses around $400 per month. I may be able to offset those costs by not taking an overseas trip this coming year, and hopefully not getting my bike stolen.

If you have any questions, comments, or criticisms about my spending habits, I’d love to talk to you about them! I would also encourage you to track your own spending, as it is a powerful way to boost your saving efforts. Thanks for reading, and best of luck to you in 2018 🙂

#MoneyGoals

The obvious factors that affect your take-home pay for a job are 1. how much are you getting paid? and 2. how much is taken out for taxes?

But you’re not getting paid your after-tax wage per hour. It’s only per hour you are working, and doesn’t take into account commute time, lunch time, or what you have to spend on transportation, clothes, or food that you otherwise wouldn’t have spent had you not had a job.

For example, my current job pays $15 an hour. After taxes are taken out, it’s roughly $12 an hour (shoutout to Texas for not having a state income tax). So in an 8 hour day, I make $96 after taxes.

I have a one hour commute in the morning, a 30 minute lunch break, and an hour and a half commute back home in the evening. So my work day really takes up 11 hours. We’re down to $8.73 an hour (96 dollars/11 hours=8.27 dollars per hour).

Now thankfully my commute is always free, thanks to school giving full-time students free public transportation passes and me not owning a car. I also bring my own lunch, so food costs are the same as they would be if I was at home. That means my real hourly wage is right around that $8.73 number.

But let’s imagine that someone drives their car to work which they bought with a loan, and then buys fast food at lunch every day (which is not rare at all, even though it should be). Here’s their made-up stats:

Wage: $25 per hour. After taxes, let’s say $20, so $160 in an 8 hour day.

Commute: 1 hour one-way, 2 hours each day.

Lunch break: 1 hour

Car payment: $350 per month (national average new car payment is $500 *gags*)

Insurance: $100 per month

Gas: $50 per month (they have a really efficient car, good for them)

Lunch: $7 more per day than it would cost if they brought their own lunch. ($10 lunch vs. $3 lunch estimate)

LET’S DO SOME MATH!!

$500 per month transportation costs (car payment, insurance, gas)/20 working days per month= -$25 per working day

Lunch is -$7 per working day

So their real hourly wage is (160 – 25 – 7) dollars/11 hours = $11.63 per hour.

This hypothetical person is spending ALMOST HALF of their after-tax money on the job itself. Since we know that money is simply a derivative of time, this means that the first half of their workday is essentially unpaid and wasted time.

Move closer to work, bring a lunch from home, take public transportation, bike, or walk if you can. Smile, and enjoy the raise you just gave yourself. #MoneyGoals

 

(Pictured: Extra ridiculous traffic during rush hour. Plano, Texas)

Fear not if you haven’t bought me a birthday present, I don’t want you to give me anything.

What I want is for you to open a Roth IRA if you don’t have one yet (check out this post to learn how to go about it, and I can help you out too!) OR if you already have a retirement account, put an extra amount in there. Maybe $20, maybe $100, maybe $1,000 if you can!

I’d like nothing more than for you to invest in your future, it would make my day 🙂

Happy birthday to me, and happy investing to you #MoneyGoals

 

(Pictured: Homemade vegan strawberry cheesecake brownies. Mora, Minnesota. August 2017)

When I was in high school and all my friends started getting cell phones, I promptly argued to my parents that I should have one too. They told me that I could get a phone whenever I wanted to, but I had to pay for it. So I rocked a pay-as-you-go flip phone for a couple years when I was 15 or 16. Then I got an iPod touch, and just used a texting app whenever I was on wifi. It wasn’t until I graduated high school that I started coughing up 35 bucks a month for using my brother’s 2011 Android smartphone.

Set on auto-payment, I hardly noticed the $35 slipping out of my checking account every month. Then I started tracking my monthly spending, and realized that in the last 2 years I had spent $840 on keeping my hand-me-down dinosaur of a phone alive.

That had to change.

The hours after that realization were spent researching how many texts, minutes, and megabytes I used on a monthly basis and finding what plan could deliver those numbers at the lowest price.

I found TPO aka The People’s Operator. They run off of Sprint’s network and keep their costs low by not having physical stores, and by spending nothing on advertising (which is why you’ve never heard of them). They also donate 10% of your bill to a charity of your choosing.

Their $16 a month plan ($19.51 after taxes) gave me as many texts/minutes/data that I had been using previously, and saved me $15 every month which would be $360 saved after two years. Then I started watching how much data I used, and found I could significantly cut it down by downloading podcasts while on wifi instead of listening to streaming music while biking.

So now I pay $10 a month which comes to $12.18 after taxes. My $22+ savings every month will add up to over $500 after two years. If I invest my savings for the next 40 years ($270 every year compounded annually at 7%) I’ll have an extra $57,000 lying around just from substituting podcasts for Pandora radio. Not a bad tradeoff, huh?

If you’re interested in TPO’s plans, feel free to check them out here. If you follow that link and end up using their service, you’ll get a $10 credit (and I will too, so thanks!)*

The one bump in the road that I had with TPO was that it didn’t send pictures when I first started using it, but it’s an easy fix which you can find here, and I haven’t had any problems since.

Also, if you are interested in reducing the amount of data you use, check out these tips, most of which I use and allow me to easily get by on the lowest-cost plan possible.

Happy savings friends! #MoneyGoals

 

*If I ever recommend any product/service on here, I will do so only if I believe that the product/service will save you money or make you money. In short, if I’m saving/making money it’s only because you are saving/making money. It’s all about the win-win 🙂

(Pictured: My good friend Sammy J modeling his state-of-the-art iPhone 4s. September, 2013. Mora, Minnesota)

Money is neither good or bad. It is a tool, and can be used for positive or negative things, just as a hammer could be used to build a home or could be used as a deadly weapon.

Unfortunately, we hear a lot about the tool of money being harnessed in negative ways, often in the pursuit of more money and power. Big tobacco companies paid researchers and scientists to claim cigarettes weren’t bad for people’s health, and sugar companies are doing the same thing today.*

But you, beautiful reader who is saving and investing, you can use the power your money grants you in positive ways. You can save lives, help your community, spend more time with people you love. Your power could help you quit a job that isn’t making you happy, travel the world, focus on your health, or volunteer more.

So keep up your efforts to save and invest, and if you haven’t started yet, now is the time! #MoneyGoals

 

*I found a lot of articles on this, so if you want to read more check these out:

http://www.takepart.com/article/2014/07/20/how-sugar-industry-using-big-tobacco-tactics-downplay-danger-sweets

http://www.newyorker.com/business/currency/a-big-tobacco-moment-for-the-sugar-industry

Also, random fun fact I learned while doing some research for this post, every President we’ve had for the last 60 years has been a multi-millionaire.