I’ve been tracking my expenses, and its been a great way to get a real grip on how much I’m spending, what I’m spending it on, and what my savings rate is. Part of me is thinking that I might have gone overboard, as I’m saving 83% of my pre-tax income, which is higher then the upper end Larry MacDonald recommends (and I think most people would find his 40-75% suggestion extreme).
I haven’t tallied my spending from New York yet (which should drive my averages up), but before I left I had gotten my variable spending down to almost $1200 (shaving another $100 off of what many people seem to think is an already low cost-of-living).
What I’m thinking is that I might start taking anything above 75% that I save and earmark it as “mad money”. If I want to travel with this, blow it at the mall, buy some big tech toy or whatever, that’s what its for, to be spent foolishly. I’ll try to avoid anything with a monthly commitment, but if I end up with something that does have a monthly commitment, I’ll just take it out of the mad money fund (and cancel it when/if it runs dry).
I’m torn about whether this makes sense or not, because with my current spending, I could be retired in 3 years or less. Capping my saving at 75% would definitely push this back (and lead to a potential retirement in 5 years or so, unless I could up my income a bit). My lifestyle would definitely improve though…
Definitely food for thought…
July 3, 2007 at 11:25 am
83%? With our taxation I didn’t think that was mathematically possible.
Mike
July 3, 2007 at 11:29 am
You are saving 83% of PRE-TAX income? WOW! Do you own your own business? How do you keep your taxes that low?
July 3, 2007 at 11:47 am
Uh, sorry, maybe I was unclear. I’ve saved 83% of my income BEFORE I’ve paid taxes (but obviously I’m going to have to pay taxes on my full income later, I’m not sure what they’ll be yet – that’s going to come out of my savings).
Yes, I’m self-employed, so there’s no “withholding at source” for me (I’m going to have a big bill come April). Additionally, I earn a good income and live cheaply (as has been previously established
.
That being said, there definitely are tax benefits from owning income property (such as depreciating it) that I *think* I’ll be able to use to defer taxes (I’m planning on taking the H&R Block course this fall for exactly this purpose) and I’m planning to max out my RRSP (which I’ve been accumulating over the years when my income has been quite a bit lower – I was trying to start a software business). Additionally I can deduct some of my expenses since I’m self employed (and can deduct things like my transit pass that everyone can).
You guys have got me worried that I may have been under-estimating tax time now
. Maybe my “mad money” will turn into “pay the tax man money”…
July 3, 2007 at 12:59 pm
I thought that businesses have to pay taxes on a Quarterly basis? At least that would help you budget your tax requirements.
I also noticed that in your expense sheet, you don’t count utilities (heat/light), does the $440/month rent cover that also?
July 3, 2007 at 1:13 pm
Once you reach a certain level of income they start requiring this. I was earning a very low income (before this year), so things will probably change for me (I asked my accountant this exact question, and he told me I don’t need to file quarterly yet).
All utilities are include except hydro, which my girlfriend and I split. We haven’t had a bill since I’ve moved in (its billed every 2 months), so I’ll probably be adding that in at some point.
Water and heat are included.
July 6, 2007 at 6:45 am
[...] Cheap from Financial Security Quest writes about how he saves 83% of his income!..and I thought that my 20% was pretty [...]
July 18, 2007 at 9:07 am
[...] Those who challenge me and get me to look at things from a new perspective (like Mike and Q’s responses to my income post that didn’t include taxes or Money Gardner and Mike’s clarifications of my living expenses in my about section, [...]