Wednesday, 1 Feb 2006

Speaking of Money and Taxes…

Don’t forget that taxpayers with a gross adjusted income of less than $50,000 may be eligible for free online tax preparatin and filing.

Don’t shell out $20 and up for Turbotax or Taxcut (unless you really want the free-after-rebate virus and personal finance software bundled with them) before checking the IRS Free File site to see if you qualify for no fee online filing.

Wednesday, 1 Feb 2006

Savings Comparisons: $40,000 vs. $20,000 Income

The discussion in the comments area of my savings post from yesterday got me thinking: Could I save money if I made just half my current salary?

I plugged in my current basic monthly living expenses and tax information into Excel, then popped in the figures for what I would be spending on the same items if I made $20,000/year. I adjusted for the lower income value by cutting back realistically on certain monthly expenses such as housing, dining out, clothing, cable, phone, etc, but kept utilities, insurance, and car maintenance the same.

Without further ado, I present to you my savings comparison for a 40k Maggie and 20k Maggie. The comparison makes the following assumptions:

  • Single
  • No dependents
  • Rents housing
  • 2 cats
  • Car is paid off/no car payment
  • No school loan debt
  • No credit card debt
  • 25% tax bracket for 40k income and 15% tax bracket for 20k income
  • Works full time
INCOME LEVEL
Basic Monthly Expenses 40000.00 20000.00 Penny-Pinching Tactic
Housing/Rent 700.00 400.00 Move to $800/month 2 bedroom apartment and get a roommate
Groceries 125.00 100.00 Cut back on red meat, buy whole chicken instead of just breasts
Dining Out 20.00 5.00 Cut back to just one Chinese restaurant lunch combo a month
Electricity 50.00 50.00 No change
Water/Trash 20.00 20.00 No change
Natural Gas 20.00 20.00 No change
Phone 50.00 35.00 Switch to cheapest T-mobile plan
Gasoline 100.00 100.00 No change
Auto Maintenance 6.66 6.66 No change
Cable TV/Internet 90.00 45.00 Cancel cable TV; if net access is available elsewhere for
free, cancel Internet access, too
Car Insurance 43.33 43.33 No change
Prescriptions 12.66 12.66 No change
Gym 10.00 10.00 No change (If the gym costs more than $10, I’d work out at
home for free)
Clothing 25.00 12.50 Reduce annual clothing budget by 50% to $150
Dental 21.00 21.00 No change
Vision Insurance 6.33 6.33 No change
Health Insurance 0.00 0.00 No change (Already on cheapest, free medical insurance plan
at work)
Pet Supplies/Food
20.00
20.00
 No change
Vet Fees
6.67
6.67
 No change
Total Monthly Expenses 1326.64 914.14
Total Annual Expenses 15919.72 10969.72
Income Taxes 6665.00 2635.00
FICA and Medicare 3060.00 1530.00
Total Expenses + Tax 25644.72 15134.72
Potential Annual Savings 14355.28 4865.28
Percentage of Total Income 35.89% 24.33%

So, with proper budgeting, I could still set aside the maximum $4000/year in a Roth IRA even if I were making $20,000. That would still leave me $865.28 ($72.10/month) of discretionary funds for extra savings, incidental expenses, hair cuts, toilet paper, a subscription to Oxygen magazine, hobbies, gifts, and such.

And, most importantly, I could still “afford” to live a healthy, fitness-oriented lifestyle.

Now just imagine if I actually reduced my expenses as noted for the $20,000 income level while earning my current salary. I could have potential annual savings of $19,305.28, or 48.26% of my gross income.

:shock:

Unless I manage to reduce my housing/rent expense, this will not happen, but it’s an eye-opening exercise nevertheless.