Your biggest expense should be you!

Your biggest expense should be for your future self for the first 5 years. The younger you are, the easier and better it is for you to take 50%-60% of your paycheck and put it away. Imagine being 19, 20, or 21 and earning $20,000 and not having to pay a student loan and you are living at home (or with a family member that is paying the rent/mortgage and you happen to live there with them). So what is an alternative choice you can make? What about putting 50% of that away and not paying a dime in Federal Income tax! Crazy?, not at all!

If you have a 401k available to you through your employer, you could put $5,500 into a traditional IRA, and $4,500 in the 401k, and may even get a match on some of the 401k contributions. Since the standard deduction and personal exemption total $10,000 in 2013 according to the IRS 1040EZ, the $10,000 you put away into a deductible IRA and deductible 401k comes down to a taxable income of $0! After that, you will be in the 10% tax bracket for Federal purposes. So, if you’re making $30,000, you’d only have to have paid $1,058 for the entire year … with one caveat that I wrote about here.

Will you still have to pay Social Security Tax – yes, Medicare Tax – yes, State Income Tax – yes (maybe), Unemployment tax – yes. So that means that the $20,000 that you earned is taxable as far as those particular taxes are concerned, and that would amount to: SS ($1,240), Medicare ($290). So your total Federal taxes paid on an income of $20,000 would be $1,530 or 7.65%.

I didn’t used to think of my future self as an expense, but I most certainly do now, and you should consider YOU as your biggest expense. As a matter of fact, I save off the emails that I receive for various other bills paid, and simply added a folder named “FutureUs” as a sub-folder to the “Bills” folder. This helps further to solidify it in my mind that I am absolutely doing what I can to pay myself first and the other bills after that.

This entry was posted in budget, budgeting, Financial Arsenal, financial directive, Goals, Income Tax, networth, Retirement Savings, spending plan and tagged , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Protected by WP Anti Spam