Tuesday, May 5, 2009
I started out deducting $25 a paycheck 18 years ago and couldn't imagine how I would be able to live without that extra $25 every two weeks. Fastforward 18 years and I managed to get by quite well! I own my own car, have more clothes and shoes than I know what to do with, go out to dinner with friends, and have a retirement porfolio - invested mostly in cash and bonds - that is worth $100,000+. And this year I bit the bullet and began putting away the full $20,000 a year. How?
Being thrifty, living below my means and most importantly, saving on taxes. The new 2009 tax tables are available on the irs.gov website and here at a this personal finance blogger site No Credit Needed
As a single Mom, head of household, making $73,000 per year, my taxes are figured like this
If Taxable Income Is:
Not over $11,950
The Tax is 10% of the taxable income
If Taxable Income is over $11,950 but not over over $45,500
The tax is $1,1950 plus 15% of excess over $11,950
If Taxable income is over $45,500 but not over $117, 450
The tax is $6,227.50 plus 25% of the excess over $45,500
If Taxable Income is over $117,450 but not over $190,200
The tax is $24,215 plus 28% of the excess over $117,450
If Taxable Income is over $190,200 but not over $372,950
The tax is $44,585 plus 33% of the excess over $190,200
If Taxable Income is over $372,950
The tax is $104,892.50 plus 35% of the excess over $372,950
So my tax burden is $6,227.50 plus $6875 = $13,102.50
Whoa! I didn't itemize taxes last year, because I don't own a home, but I only paid abut $5,000 in taxes. (legitimately!)
By contributing $20,000 to my 403B this year my tax burden drops to $1875 + $6227.50 = $8102 or by $5,000.
(More correctly, I would say that my tax burden is deferred to when I begin withdrawing funds from the 403B and supposedly, my tax bracket will be lower.)
With various other tax savings such as insurance premiums taken out of my check before taxes, I am able to reduce my tax burden even more each year.
If you haven't started taking advantage of your workplace retirement auto deductions, don't fret too much (this is the Real Life Money blog and I get it!). It took my 10 years to convince myself that I could afford to put away the maximum amount into retirement. And it was easier when I began putting money into bond funds, rather than compound the fear with trying to figure out stock fund purchases that were offered to me.
Baby step of the week: investigate your employer's 401K/403B accounts and defer AT LEAST $25 a paycheck. It's a great habit to get into and it's Fun To Watch it Grow...
Monday, May 4, 2009
Michael Csikszentmihalyi (pronounced chick-sent-me-high) writes about the psychology of Flow in his book "Psychology of Optimal Experience. " It's that moment when time stands still and you forget to check your watch, you don't notice the temperature, you don't care if you are hungry, you are completely immersed in life. Athletes know about flow, it's the sweet spot on the tennis racket and the pure meditation on the golf course when you hit a perfect shot.
Flow comes when we have goals -- goals that are attainable. They help you concentate and crowd out petty distractions of the mind. It's not in the achievement of goals, but it's because lack of goals can lead to difficulty concentrating and avoiding distractions. Goals are structure, structure is good when the fears threaten to overwhelm you with negativity.
One vivid example in the book Flow is of prisoners of war who achieved flow by reciting stanzas in epic poems memorized in school. If that process can led to flow, then I know that we can achieve flow by reaching for financial independence and catching it...
I attended a lecture given by Csikszentmihalyi and took copious notes because Flow is WAY FUN. The key to setting your goals so that they engage your psyche is to setting them so high that they are a stretch, but not so high that you can't reach them (which produces frustration instead).
EXAMPLE: My goal is to say "bye-bye" to the corner office and to be my own boss, to employ family members, create more complex experiences in the every day world. The dream we all have -- to become my own family CEO, chart my own course, make my own decisions, hit that "cross over" point to financial freedom -- but that will take a cool $1,000,000 in conservative savings. I've got the equivalent of about half that in pension funds and retirement funds that can't be touched.
I've got 8 more years to do it all in. But just thinking about saving half-a-million is so depressing and overwhelming. Thinking about saving $50,000 a year is kind of overwhelming. But if I live on $2,500 a month, I can bank a good $40,000 a year. Wow...
So the goal is to make it on $2,500 or less THIS MONTH is a challenge.
1) I'm going to hit the dollar store instead of the mall.
2) Bring my lunch to work 3 days this week.
3) Stock up on the staples when they are on sale.
4) Read a personal finance blog tip every day.
5) Put some energy into a sideline business that will fund the fun extras like trips and dinners out(www.wineshopathome/conniemcleod.com is my current experiment). Do it with a friend so that we can enjoy the activity together and grow the relationship.
6) Dry my clothes on an indoor clothes line.
7) Investigate rental property
8) Turn off the lights when I'm not in the room.
9) Make coffee at home 3 times this week.
What's your goal for this month? This week? Is it doable? Is it a stretch?
Check out Bargaineering's personal finance blog for more psychological money games in a quick and easy video format.
Remember, Flow IS FUN...and making your money work FOR you, instead of you working for it, is a whole new kind of psychological high.
Friday, May 1, 2009
Top Personal Finance Blogs is a list of over 100 blogs about money, saving, couponing, investing, the philosophy of money, how to be cheap and still chic, definitions of frugal, I am exhausted reading them. And they all have Great Tips! Really. Smart people with wonderful advice.
But I can't put all of these tips into place in my life and still stay sane. Not with this personality. I'm sure there are others out there who feel the same way. And that's okay! Just because we shrug ourshoulders at the conversation about .25 off Bertolli sauce doesn't mean we can't be financially solvent and secure.
So if you are like me, and are looking for someone who is trying out the easy-to-use and successful ideas versus the just-massaging-you-inner-OCD steps, maybe we are money soul mates. Intellectual money friends.
I'll ferret out the real versus the crazy, and share, if you'll do the same. Email me when you want to vent...'cause this is Real Life Money. And I like to use money to give me time to spend with my firends. Lot more fun than reading the Yahoo Finance page.
So, it's the first of the month.
Pay your rent or your mortgage and check out these favorites posts on how to:
Act like a millionaire (even if you aren't one).
Save on Bounty Paper Towels
Somehow they work together. Amazing.
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