Tuesday, November 13, 2012

Starve the Beast 2013

I've worked out my taxes for this year and it works out to be about ~$2,300 on about $30,000 of income.  That money compounded at 10% for 15 years roughly triples.  Lets assume for the sake of assuming that I actually can compound that money at 10%.  (No one believes this but me.)  Over the course of the next 15 years that savings will amount to 73,000 dollars.  This is 7% of the money I need to accumulate by 40.  This isn't the total million but it is a significant fraction.

So how to eliminate my tax liability entirely.

I don't think I could do this without my employer's 401k.  I plan on using the savers tax credit to eliminate my taxable liability.   The credit is worth $1,000 if my income is below $17,000.  The total tax liability for me if my income is 17000 is $725.  This means the credit completely covers my tax liability.  If my taxable income is $1 higher however my tax shoots up to $325 as the saver's tax credit goes from being $1000 to only being worth $400.  IRS rules...eh?  The most important thing in trying to get tax liability down to $0 is reducing taxable income to $17,000.  The easiest way to do this would be just to set the 401k to work out so that all taxable income gets down to $17,000 and do nothing else.  This wouldn't be the smartest thing to do.  Its much better for me at this point to put as much money as I can into a Roth IRA.  This makes it a lot harder to have no taxable liability now.  Next year total gross income will be $36,000.  I'll put $5,000 into a Roth IRA.  Next I'll put $6,000 into an HSA which will reduce my income from $36,000 to $31,000.  Then I just need to sock $14,000 (1166 per month) plus any other income I happen to make into my employer's 401k plan.  This will leave me with $1,000 a month to live on.  Hopefully the cap on the best part of the Saver's credit will be increased and it will make it possible to have a little bit more per month.

So if one could figure out how to live on $1000.  One could really save a great deal of money.  (Obviously). 

My current budget less the investment deposit is $1236.  We need to reduce the budget then by $236.  If I don't take a vacation next year we could get that down to $136. If I can get my gas budget down to $50 this would save another $40 bringing us to $96.  By reducing the movie budget by 10 bucks we get down to $86.  I'm switching over to haircuts at home saving another $20 bringing us to $66.  We'll have to cut the food budget by 20%.  This isn't the easiest thing in the world, but when you don't have any kids (or medical expenses) you don't really have any excuses. 

No comments:

Post a Comment