People are capable of coming up with all kinds of excuses to go ahead and do whatever they wanted to do in the first place. This is especially true in situations where there are a large and financially motivated contingent of folks trying to help you justify nonsense to yourself. Car dealerships come up with all kinds of chicanery to convince you that you’ve gotten the deal of the century. The reality is, that on a per mile basis you will pay less driving a used car than a new car. Despite the preponderance of $1,000 used cars floating around folks twist themselves in knots trying to explain why taking a 50% depreciation hit on day one with a $20,000 car is financially sensible (spoiler alert: It’s not).
How big a deal is $19,000?
Digging yourself out of that depreciation hole takes a long time. You may be inclined to make the argument that better mileage, or less maintenance makes up for it. That very well could be the case, but the fact of the matter is that I expect to earn an annual 8 to 10% return on that $19,000 I don’t spend. That means that I can spend $1,520 extra on gas and maintenance before we even talk about you catching up. Can you grasp how huge the difference is? I can buy a new $1,000 car every single year, and still save more money than someone buying that $20,000 new car. A brand new Honda accord gets 27 mpg in the city, a 1996 Honda Accord gets 26 mpg in the city. You aren’t going to beat me to the tune of $520 per year on gas with that amount of difference. If some serious maintenance is required you just sell it for scrap and buy another.
Ultimately a car, what is the cost of comprehensive insurance on our $1,000 used car? The correct answer to that, is $0. If the car gets dinged up, you probably shouldn’t care, it’s a 20 year old car, get over it. If you crash the car, don’t worry about it. You just go buy another one, out of the thousands and thousands of dollars you’ve saved. Cost of comprehensive car insurance on a new car? It’s somewhat difficult to find. The best estimate I could find was at minimum $30 per month, or an additional $360 per year. If anyone with a new car pays less, I’d be very interested to know more about it. This kicks our annual differential up to $1,880 per year. For gas, we can get an order of magnitude by figuring an extra 20% spend on gas (far more than our Honda example above), I spend about $75 per month on gas. Therefore, you’re looking at about an extra $15 per month, and that makes our differential an even $1,700.
Not a need
My pet peeve here is that people claim that their car is a need. You need transportation (debatable), you don’t need to spend $20,000 on it. Maybe you aren’t going to spend $20,000 on your new car, after all the average amount a person in the US spends on a new vehicle is…
I just looked up the average amount that American’s spend on a new car. Holy crap! You people have gone insane. Apparently, the actual price folk actually pay is $33,500. It’s easy to see that this could really drive wealth inequality. If I drive a cheap car for two decades and you drive a $33,000 car for two decades, our savings is simply going to diverge. So the purely financial conclusion is buy used. Now to be fair, I’m certainly guilty of this too. The car I drive is worth $4,000, which is far more than what I really need. Yes, you’re car will be ugly. Maybe it’s important to you that you drive a nice or comfortable car. Like every other luxury, you pay for that.Don’t go around telling yourself you need a new car, that’s a load. The financial difference is massive. If you’re a Thousandaire please, don’t keep 50% of your net worth in depreciating asset, you’ll make Franklin cry.
Living with a terminal illness is traumatic for any individual and family involved. Second to the emotional suffering is the financial situation you may find yourself in. You have to get your finances in order to ensure all your affairs are settled before you move into the next world.
We’re going to make that a tad easier by going through a simple financial checklist with you below. Make sure you’ve considered all these aspects in the wake of your terminal illness diagnosis.
End of life insurance will cover (burial insurance) the costs of your burial usually even if you have a terminal illness. In some cases, this will also be comprehensive funeral insurance, so everything related to the funeral will be covered. It isn’t costly to take out and it lasts for your entire life.
You can get burial insurance even if you’re terminally ill, so don’t put it off.
You can pass your retirement account to your spouse, or anyone you like. The 401k doesn’t evaporate should you die before a certain age. When you’re terminally ill, liquidity is absolutely crucial. You can withdraw from your 401k early without receiving the 10% early withdrawal penalty if you’re found to be terminally ill.
Do remember that you will still have to pay tax on this income.
Savings accounts are simple to handle. Your first task is to determine who you’re going to leave your savings accounts to, assuming you don’t intend on using them to supplement your lifestyle until the end comes.
You may want to consider using your savings to invest in some potential short-term income schemes. If you do intend on using your savings, we recommend speaking to a financial adviser to get some expert advice. You don’t want to make the mistake of making the wrong investment because you won’t be able to get that money back.
Your Last Will and Testament
This can be the hardest part of all. You’re coming to terms with the fact you’re going to die. You shouldn’t put this off because dying without a last will and testament in place is equivalent to financial suicide, as well as doing your loved ones a disservice.
Get it done as soon as possible.
Make it clear who gets what. In most cases, this will be your significant other. But the chances are you will want to give little aspects of your estate to other relatives too.
Power of Attorney
You may be wondering why this is on a financial checklist. The power of attorney determines what happens to your money should you become unable to actually decide what to do with it. This should go to the person you feel most qualified to deal with your finances fairly.
If you don’t have this in place, it can cause chaos. Many families haven’t set this up and it’s led to their money been wasted.
Have You Settled Your Debts?
It’s not uncommon for creditors to go after relatives after a person has died. This is perfectly legal and it can cause a lot of heartache, as well as acting as a nasty surprise. Make sure you have processes in place to settle your debts before you should pass away.
This is simple enough. Gather together all your debts and mark out how you’re going to pay them. If you only have a few months to live, it may be worth simply paying them off in one lump sum.
Finances don’t have to be difficult to get a handle on during your final days. They simply require some forethought on your part. Don’t leave it until the last minute. Sort out your finances today!
Earlier this last month, I sat down with Robert Grosshandler the founder and CEO of iConsumer (Non-Referral) (Referral link). He graciously agreed to put up with my questioning about what iConsumer was and how it worked. Below is the interview edited for clarity and what I personally think is interesting. Additionally, you’ll find a link to the original sound file. iConsumer is basically a discount portal, the interesting quirk is that, in addition to cash, you also get shares of preferred stock in the company.
Adam: Alright, can you tell me a little bit about iConsumer?
Rob: Well so, iConsumer is a way for the 99%, or ordinary people, to get a piece of the pie; a piece of the economic pie. To participate in the fabric of our economy simply by doing what they normally do which is go shopping at 1700 great stores. When they go shopping at these great stores in addition to getting stock in iConsumer they’re also going to save money and even better they’re going to get cash back rebates. So you’ve go shop at REI, Nordstrom or Macy’s you’re going to get 1%, 2%, 3% cash back. Different stores have different rates. You’re going to save money because we have lots of stores doing this so they’re offering up great deals, and you’re going to get stock in iConsumer you’re going to become a shareholder…the more you shop the more stock you’ll earn. The more shares of stock in iConsumer you will earn. So you’re becoming a bigger shareholder, a bigger stockholder the more you shop in addition to getting great cash back.
Adam: How does someone actually shop through iconsumer?
Hopefully it’s really easy. Once you become a member, which takes 5 seconds and is free, you use one of the links on our site to go to the store you’re interested in. Everything about accounting for the stock and cash back you earn happens in the background you don’t do anything special you don’t have to use any special coupons. Fundamentally, the process is invisible and easy.
Adam: Can you use a credit card?
Rob: Exactly, that’s exactly what you are doing. If Macy’s accepts bitcoin go ahead and use bitcoin, use paypal, use your credit card.
Adam: Okay great, So what companies are you working with, any specific examples, I know you mentioned REI?
Rob: There are really are over 1700. The ones we’re not working with are the car companies. If you want to go travel and use expedia, travelocity, or orbitz use one of those. You can buy flights on american airlines if you’re looking for clothing, there’s Macy’s, Nordstrom, JCPenny, Land’s end. If you’re buying computer hardware it could be oh how about Apple how about Newegg or best buy. So literally more than 1700 stores offer you great prices, cash back, and of course you’re earning stock in iConsumer every time you buy there.
Adam: So how do you guys create these discounts?
Rob: We work with the stores. The stores are in iConsumer as a way to create customer loyalty. They work with our team to make sure that people who have said, “Hey I wanna shop at some store.” We make sure that they offer up great deals, so sometimes they offer a free shipping deal, or a coupon deal. Sometimes there’s no deal at all and you are just getting cash back because you shopped through iConsumer.
Adam: Okay, so you’ve mentioned when you buy from iConsumer you get a certain number of shares how many shares do you get, how are these shares created and are they traded on any sort of exchange.
Rob: That’s a great question, so you get a dollar for dollar number of shares so right now we’re still in the process of this the SEC has not yet said go, when we become SEC qualified then all of this actually happens. It looks like it is going to happen in December. We’re pricing shares at 9 cents per share, so if you have a dollar of cash back you’re going to get a dollar’s worth of shares, which is about 11 shares give or take. These are tradeable shares they are going to be on the OTC markets, they will be over the counter shares, that you have the right to sell if you want to.
Adam: How do people end up holding these shares? How do they actually get the shares?
Rob: So it’s all electronic. You’ll actually get a share of stock delivered to you electronically and you can choose to hold that in an account we create for you with one of our partners or if you have a broker you prefer like Ameritrade or eTrade you can transfer the shares into you’re existing trading platform, or you can just let us keep track of it on our site.
Adam: Just to clarify again. When these shares are iConsumer is saying…Are they sort of created then do they come out of some fixed pool of shares…
Rob: Right, so in order to go public we have to register this offering. So when we register this offering we say that we have set aside X number of shares to be given to member’s when they shop. So I don’t actually remember the number, but there is a fixed pool of shares. If we are successful and we have given away all our shares we could go and make another offering with the SEC to create more shares to be given to even more shareholders.
Adam: Any plans for dividends
Rob: So you pay dividends when you’re profitable, you can pay dividends when you’re not profitable but that’s a bad idea. If we become big and valuable and there is more cash than we need to run the business then we are in a position to pay dividends. The stock that people are getting is preferred stock so the preferred shareholders get a dividend before anyone else gets it.
Adam: What is the plan for iConsumer to become profitable?
Rob: Well, that’s a great question. You’re actually the first person to ask me these great questions, which are very fundamental questions. We’re modelled after some other companies you may be familiar with like eBates. eBates sold for $960 Million to a Japanese company a couple years ago and they did that with 2.5 million members. So our goal is to become big. We get enough people using this thing, if we’re a fifth of the size of eBates, the company should be making money, the company should be in a position to make a profit should be in a position to pay dividends if it doesn’t need the cash, and therefore traditionally people think that those companies are worth more, they certainly are worth more than what you paid for your stock. In this case you didn’t pay anything for your stock.
Adam: What is the timetable on this sort of going to market?
Rob: Yes, we’ve actually filed with the SEC. While there are no guarantees our expectation is that in December the SEC will qualify our offering. At which point we’ll be in a position to transact on the stock side of things. We’re actually up and running today, so if you look at iConsumer today, you’re getting credit on the iConsumer shares you earn today. We have good computers with big storage so we’re keeping track of how many shares you’re earning in addition to the cash back you’re earning.
Adam: My other question would be that if I am an early adopter of iConsumer and I start using it all the time, why should I not be concerned that in the future when you scale up to a million users all those future users are going to end up diluting me out of my share of the company.
Rob: Part of what we will be doing is that we will be watching the value of those shares. So while they’ll always be getting a dollar of stock in addition to a dollar of cash back, that will be for fewer and fewer shares. Because the price per share, as we become more successful we expect to go up.
Adam: Suppose instead that you become more successful, people don’t want to sit on the shares and just immediately go to market and sell them causing the price to be lower than you expected and you have to keep printing more shares to keep up with that dollar value. Is there any concern there?
Rob: Well so, there is certainly is. When you’re running a public company you have to be concerned with those kinds of issues. We’re doing something for the first time, there’s never been a company that has been built because people are being given shares for free. We’re aware of this concern. We hope that our valuation will continue to go up. We will be very aware of managing that number. Managing how many shares go to shareholders because they’re shopping. From a how many people bought shares and paid cash for those shares, that offering is a max of $2 Million. For at least the first million people we don’t foresee any problem. But it’s a great question. It’s one of the interesting unknowns what we’re doing how we’re going to manage it. If that’s something you are concerned about…the stock is tradeable so sell out of it.
I later followed up with Rob and asked him a few more questions about how the preferred stock and the common stock actually work, his response:
Our preferred shares have three attributes that distinguish them from common. A liquidation preference, a dividend preference, and a voting rights preference. The structure is designed so that the common does not receive benefits the preferred haven’t already received, other than voting rights. I do not expect the common to be traded.
1) Liquidation. Preferred comes first, after that the same as common. Ergo, if there is a liquidation event (e.g. sale, dissolution) the preferred stock gets first dibs, then common gets second dibs, then the remainder is split equally. As of this writing, it is calculated at $.09 a share (what the original purchase paid for the stock on original issuance, or the value ascribed to the stock when it was issued “for free” to a member).
For example, if there are 100,000,000 preferred shares issued, and 100,000,000 common, and the company is sold for $100,000,000. The first $9,000,000 would be allocated to the preferred, the second 9,000,000 would go to the common, and the remaining $82,000,000 would go equally to the preferred and the common.
If the company is sold for $9,000,000, all of the proceeds would go to the preferred.
2) Dividend preference. Effectively, the company cannot pay a dividend to the common without paying the same or better dividend to the preferred. The company does not promise to ever pay a dividend, only that if dividends are paid, we need to pay them to the preferred before paying them to common. Paying at the same time and in the same amount is ok.
The number of authorized preferred shares is currently equal to the number of authorized common. The authorized number of either class of shares can change. iConsumer can create new classes of shares (it is not uncommon for that to happen) as its financing needs change.
What’s really more important than authorized is the issued number of shares of any class. All of the common is issued, very little of the preferred is issued. As people buy iConsumer stock, after the SEC Qualifies our offering, the number of issued preferred will go up. As people become members, and as people refer members, and as people get cash back, the company will be issuing them preferred. In other words, the common will own a smaller percentage of iConsumer as it grows.
Our plan is that the number of issued shares of common will approximately equal the number of issued shares of preferred at about the 1,000,000 member level. So, if that plan comes to pass, and market or other forces don’t cause us to change that plan, if the company were sold to a third party, and assuming that the sale price were in excess of approximately $18,000,000 (given the current plan), common shareholders would receive approximately half the proceeds, and preferred shareholders would receive approximately half the proceeds.
Also interesting is to speculate what the company might sell for at the 1,000,000 member level. Our guideposts are what other companies sold for. eBates sold for $960,000,000, with 2,500,000 members, about two years ago. That valued each member at about $400. RetailMeNot and coupons.com are also good guideposts as to what the future value of iConsumer might be, as they have similar economic models.
So, is iConsumer, the website a good deal? I’ve used the website a little myself for purchases I was going to make anyway and it’s saved me about 5%. This is on top of credit card rewards that I was expecting anyway. My alternative, eBates, would have offered me an additional 1%. Depending on the transaction fee for trading the stock, I think that I am likely to come out ahead. The stock could fall in value by 80% and I’d break even compared to eBates. Though, in all honesty, I had no idea that there were these kind of discount portals to begin with, so without iConsumer I wouldn’t have saved any money at all.
The second question is, does the stock represent a good deal? My suspicion is that the stock (offered at 9 cents per share) isn’t a very good deal and I would recommend against buying it on StartEngine. Though, I would probably recommend against buying any stock offered on StartEngine. What is iConsumer stock probably worth? Let’s look at a few different scenarios:
Cool idea, didn’t work
In this scenario, either iConsumer fails to gain enough users to become profitable or their users mass sell the stock causing the stock price to spiral to zero as the company is forced to print more and more shares. Shares in this case are worth $0. Startups fail, this is kind of a gimmicky premise that I don’t think very many people will understand, or want to participate in. I therefore assign this case a probability of 60%.
Great idea, totally worked
In my view, the maximum value of the stock is $2. That number comes from assuming that the company is sold at $400 per user and each user only owns their starting 100 shares of stock (management owns 50%, the common and would get $200 per user in this hypothetical sale, then the remaining $200 per user would be divided among the preferred shares. If the average user owns 100 shares, then that’s $2). This, would mean that all the users did was sign up, then not use the portal. Obviously that doesn’t make very much sense, but it does give us an idea of an absolute upper bound. The dream that you’re going to buy the stock and its going to go to $20 per share is basically impossible. So what is a reasonable good-case upside? Let’s assume that on average each user accumulates 500 shares of stock. The company executes correctly and is bought out at $400 per user, like eBates was. That works out to $0.40 per share. I’ll assign this scenario a probability of 5%.
Okay idea, muddled through
The liquidation preference for the preferred stock matters a great deal. The preferred has first claim on the assets of the company up to $0.09 per share. Almost any kind of stable scenario, one that’s not great but not bad is going to give us a value of 9 cents per preferred share. This is probably the most likely “good” scenario. Even if no one makes a bunch of money at least iConsumer’s users enjoy a really stable price for their shares, they can use the portal and basically get double cash back compared to comparable portals. They can sit on shares and sell them all at once in large batches to save on transaction fees. Management makes a decent amount of money, everybody is happy, except for the guys who bought shares on StartEngine, they don’t lose money, but they don’t make money either.
Assuming these guesses are reasonable the expected value of an iConsumer share is probably about 5 cents. Actually paying money for the stock probably isn’t worth it. I will likely be a net-seller of iConsumer stock once it begins trading. (Possibly this month). The unfortunate part about this company is that if the stock price goes below 5 cents, that might be a buying opportunity for another company. Obviously if the stock is worth 5 cents and you can buy it for 2 cents you’re getting a great deal. However, because the company’s operations depend on its stock price, a low price is likely to be a self fulfilling prophecy. The good news is that using iConsumer as a discount portal is a great idea. You’re probably earning more than comparable discount portals. Obviously you don’t want to buy extra stuff just to get a 5-10% discount (after the shares are included), but I don’t need to tell Thousandaires that.
Here are the links to iConsumer (Non-Referral) (Referral link) again. You get 100 shares to start with via both the non-referral and the referral link. If you sign up with the referral link I also get 100 shares.
Here is a link to the interview audio.
Loyal3 is without a doubt my favorite free broker. If you are considering signing up for another brokerage and all you really want to do is own a handful of mega-capitalization stocks, you might consider looking into loyal3. The foremost advantage of the loyal3 platform is that it allows users to trade a handful of stocks for free. Additionally, they occasionally allow their customers to participate in IPOs of companies which are going public.
Free stock trades are a big advantage for folks investing small amounts of money. Loyal3 allows trades as small as $10. They even allow the purchase of fractional shares. Similarly it is quite easy to set up a recurring monthly purchase. The interface to view the stocks is really smooth. It seems devised to keep the focus of the customers strictly on ownership rather than trading. When you log in on a down day you don’t see a bunch of red numbers staring you in the face. In fact you have to do a little work to figure out which positions have lost money or made money. These little differences make the psychology of investing substantially easier. Anything that makes individual investors less panicky is good in my book. It encourages all of the thinking an investor ought to have. Just sit back, make regular contributions, hold forever.
As of this writing there are only 67 companies available for purchase. Further they are focused in segments that have a great deal of interaction with the general public, such as entertainment, retail, and electronics. You don’t see any oil companies on here, which is a disappointment as the volatility in oil companies can make them great candidates for buy and hold. It would probably be unwise to build a portfolio out of only the stocks available on loyal3. That being said one option would be to use loyal3 in cases where a dividend reinvestment plan has unacceptable fees. You could use a mix, of say an exxon mobile dividend reinvestment plan, a BHP billiton dividend reinvestment plan, and loyal3 automatic purchases on Berkshire Hathaway, Hershey’s, Coke, Microsoft, Amazon, and Wal-mart. One could spend a little time and construct a more diverse portfolio, but someone 30 years from now probably wouldn’t be dissatisfied with the results. All in all, you would probably be safer with a simple index fund, but if investing a tiny bit at a time in individual companies and holding them for the rest of your life appeals to you loyal3 could be a strong choice, just make sure you’re also doing something else sensible.
Initial Public Offerings (IPOs)
The other major part of loyal3 is the ability to directly participate in initial public offerings (IPO) of companies which are going public. In an IPO a company, let’s call it Twitbook, sells a certain number of shares to institutional investors, who agree to buy these shares in a given price range. The institutional investors then sell the shares on the public market. The institutional investors provide Twitbook with certainty regarding the amount of money they will receive for the shares they are selling. Twitbook doesn’t want to drop 10% of their company directly on the exchange and end up selling it for substantially less than they originally thought. By agreeing in advance to a price range the institutional investors let twitbook know that they’re going to get at least X dollars from the IPO. All that being said, in general, participating in a random IPO should make you money on average. The price is negotiated by institutional investors who are only willing to participate because they plan on selling the newly-minted shares of stock to the general investing public at a profit. The loyal3 platform allows you to adopt the role of an institutional investor. This can be an attractive proposition, assuming that you can accept the risk, and that the IPO’s that loyal3 participates in are similar to the average company which IPOs. This is a big caveat and time will tell if loyal3 is simply getting you a seat at overpriced IPOs.
Generally IPO’s are high risk. These are young companies which need to raise cash. Alternatively, the current owners of the companies are seeking a more liquid market to sell their shares in. You should ask yourself, if the people most knowledgeable about the company want to sell, why do I want to buy? Hopefully it’s clear that this isn’t an area one should go crazy in. Please don’t invest all of your money in an IPO. Please don’t invest any money that you wouldn’t mind setting on fire in an IPO.
Overall, I like the brokerage. It has some very specific niche uses but it does them pretty well. It will never be my largest account, but if you want to get in on an IPO, or cheaply create a small portfolio of entertainment companies I can’t think of a easier way. Finally, if all this sounds good and you want to buy some stock through Loyal3, feel free to use this link.
I have a confession to make. During college I was busy, I didn’t keep a full time job. Unfortunately, I also didn’t consider the opportunity I had. There are many jobs out there that are compensated really well on an hourly basis, simply because it’s too hard to get a lot of hours, and they aren’t benefitted. Instead of working part time for the same wage I might make if I was working a more scaleable job, I should have poked my head up and looked at some of these, far better options. Those of you in college, or maybe even high school. Bypass the burger flipping. Figure out what your actual skills are and contract them out. Here are a few examples to get you started.
If you are in school, you probably know how to pass the classes you have taken. Learn how to explain these concepts to people one year behind you. It’s probably worth practicing helping friends first. If you’re able to help them reliably think about marketing to folks who aren’t your friends and charging them for your services. Check what tutors in your area charge. Aim for something in the middle. The pricing here will undoubtably shock you. What’s going on here is that most college students don’t actually pay you. Their parents pay you. Their parents really want them to pass the classes that they’re paying thousands of dollars for. They would probably be happy to pay you $100 an hour if there weren’t other tutors out there charging less. You can probably make about $25 per hour of actual work doing this. You need to account for the time you spend marketing as well so your “sticker rate” will need to be something like $30-$35. Alternatively, farm out the marketing. Your fliers are never going to reach all the people you need to in the internet age. Half of your customers have their out-of-state parents scrounging for tutors anyway. Personally, I use wyzant.com. I charge about $40 per hour. Wyzant takes a huge cut (40%, so my take home is $26), but they add a great deal of value for this. They do all the marketing, billing, and overall management. I just take jobs that sound interesting, show up, and tutor. The vast majority of this is freshman physics. There’s no reason it should have taken me until senior year to do this. Keep in mind, some fields are more in demand than others. Folks studying math, the hard sciences, and economics have an edge here.
“But Adam,” I hear you cry, “I’m an English major, and all of these potential students need math/science help. You’re advice has failed me!”
Do contract writing. Depending on the topic pricing per blog post can vary wildly, if you’re interested in high value topic this can be $30 or more per post. If you want to do creative writing the pricing is a little tougher, the spread appears to be between $15 and $25 per hour. You can also do editing and proofreading for other folks. The hourly earnings here seem to be somewhat lower, between $10 and $20 per hour. All in all, this is a great thing to do if you can find a niche.
Alright, so lets say that you’ve really got a good handle on the technical end, but you have trouble communicating it to other people. So maybe, tutoring or writing isn’t your bag. You can still sell you’re actual skills in the marketplace. If you know how to program software in just about any programming language, freelance that. Check out freelancer.com or upwork.com. Seriously, even if you know something really weird, like fortran, there are people who will pay you well to fix their broken code, translate their code from one language to another, or build some module for them. Usually folks will post specific projects that they’re willing to pay a fixed amount for. You need to get good at coding fast, and correctly estimating how long a specific project will take you. You can easily clear $20/hr here.
Maybe you can’t do any of this stuff, but you can do a funny voice. Turns out that’s a thing too. You need careful diction, and to make sure that the audio you record comes through crystal clear, but you can make $20+ per hour. Take the voices you can do and make a demo reel. Look at what other voice actors have done to get an idea of where to start. Upwork seems like a good place to look for jobs, but don’t let that be the only place you check.
The world is a really wide place when it comes to deciding how to make a living. Many of these jobs would be really difficult to turn into a career, but if you only need five to ten hours a week of work, getting stuck in this minimum wage job box doesn’t make a great deal of sense. We’ve only scratched the surface here. You have some skill, that somewhere someone else desperately needs. Use it!
Every year I do my best to minimize my taxes without reducing my income. Most people think that they do this. However, most people go through the year spending and earning money without much thought as to how it impacts their tax situation. Then, come April next year they hire an accountant or use some tax software to figure out how to minimize their tax burden. Like everything else in life a little planning can go a long way. I start trying to work out my tax situation at the beginning of the tax year. My main goal every year is to hit the limit for the saver’s tax credit.
Saver’s tax credit
This sounds like exactly the sort of tax credit an aspiring Thousandaire should want. It might as well be called the Thousandaire tax credit. Basically it is a tax credit for a portion of the money set aside for retirement. Essentially it is the government 401k match. It matches depending on your income between 10% and 50% of your retirement contribution. It only counts the first $2000 of your retirement contribution as well. If you meet the 50% income limit and contribute $2000 you get a $1000 tax credit. It is substantially easier to make the income limit for the 10% credit. This is one area of the tax code where it pays to get your income exactly right. Make even a dollar more than the limit and you pay hundreds extra in taxes. So, in order to take advantage of this we have to aim our income pretty carefully.
|Saver’s Tax Credit||10% credit||20% credit||50% credit|
|Single and Married Filing Jointly||$30,500||$19,750||$18,250|
|Head of Household||$45,750||$29,625||$27,375|
|Married Filing Jointly||$61,000||$39,500||$36,500|
The good news is that the saver’s tax credit doesn’t check your gross income, but rather your adjusted gross income. What’s the difference, I hear you ask? Well the difference that we care about is that the AGI is your income after 401k, traditional IRA, and HSA contributions have been accounted for. So if your gross income is $40,000 and you contributed $10,000 to your 401k then your AGI is at most $30,000. Step one to reducing your taxes significantly means figuring out what level of 401k contributions are necessary to get below the desired income limit for the Saver’s credit. Make sure you include the impact of possible raises and bonuses (or bump your 401k contribution up by the amount of the raise when it arrives, this is probably good practice anyway). If you find that your income is too high (my heart bleeds for you) you can squeeze another $3,000 out of an HSA, giving you $20,500 of reach to get your AGI below one of the Savers breakpoints. In principle you could use a traditional IRA to get an extra $5,500 of reach but at these income levels I’d guess you’re better off with a Roth. Obviously if you are only off by a few hundred dollars contribute that amount to a traditional and the rest to a Roth, but if we’re talking about using up all of your IRA space, I’d say don’t do it.
All of these tax shelters essentially mean that, for single people making less than $50,000 per year US income taxes are consumption taxes rather than income taxes. Income you don’t consume can and should go into tax shelters.