Financial/life Wizardry - Debt/Mortgage Freedom, Life according to priorities, etc.

[Saab2000]

I am older than most here.
I have always been in small business ( now retired ) and I have never liked debt.

That's all.

I imagine this comes from your having financed part of the American war of independence in the Boston area and having a tough time with getting a return on your investment. Or was it even earlier than that?

[SteveP]

I imagine this comes from your having financed part of the American war of independence in the Boston area and having a tough time with getting a return on your investment. Or was it even earlier than that?

Not that... the real killer was getting Hannibal and the elephants over the Alps.
They are heavy animals. He pushed and I had to pull.

[Bewheels]

@zambenini,
As @davids mentioned, the fact that you and your wife are consciously establishing priorities and then taking action puts you in a great spot.

You mentioned that may people on this site are in a pretty good spot financially and I would agree given the fact the forum was created to promote discussion around high end bikes. I have had the good fortune of meeting several of the people on the forum in real life and came to learn that, like myself, they made their way into a spot where high end bikes could be part of their life by balancing out other priorities.

Here are a couple of other items I would add to the discussion -

The FIRE movement...I am going to pick on it simply because it is an exaggeration of principles already listed in this thread about living on less than you make.
First of all the underlying concept is not new. The "retire early" part is fairly new and exaggerated because there are a plethora of jobs available today with abnormally high salaries (tech, pharma, etc) that were not available 30-40 years ago to people in their 20s and early 30s, at least not the same volume of jobs as there are today.
But as in everything, there needs to be a balance. Living in a tent or a car or your parent's house, eating super cheap food that about to go bad, forgoing cultural events that might cost money (concerts, whatever) are all ways to save money. However it is all done with a foot in the future...I am going to restrict myself now in other to be able to do X in the future. The problem with that is that no one has any idea what is going to happen in the future [insert quote about the gods laughing at man's plans about the future]. Starving ones self now with the thought that there is bounty in the future is fool hardy.

Of course the opposite is also true. I had a friend who used to tell his significant other "the checking/saving account is not a game to see how fast we can get it to zero". Spending money as fast as it comes in without any thought about tomorrow is equally fool hardy.

It is all a balance. Everyone has to find their own comfort level in the balancing act.

My own journey on this without getting into details -
Years (decades) ago I was focused on many of the intangibles around community and playing my part...at least this is what I thought. Small town school teacher. Involved in community things. Racing a lot and involved in that scene. Etc. Then one day I read the letter that goes to families on how the school's free lunch eligibility worked and realized that my kid (not born yet) would be eligible. [insert needling scratching record noise here] Priorities got rejuggled with 'make more income in order to support my immediate family' got put on the top of the list. I was fortunate to find a way to do that.
My point of offering this information up is - plans change, priorities change. Identifying when they need to change and actually changing them is critical.
Elderly parents, children with special needs, unexpected events, ...life shit. Plans are great. Reality is greater.

[deano]

My point of offering this information up is - plans change, priorities change. Identifying when they need to change and actually changing them is critical.
Elderly parents, children with special needs, unexpected events, ...life shit. Plans are great. Reality is greater.

Hear, hear.

Plans are great, reality being greater made me think of an amazing quote from Moby Dick about life being about life or life about the living. Will update when I find it!

[ron l edmiston]

Ha! That resonates with me. We went through several rounds of shedding stuff before and after we moved. For about a year I felt pretty self-righteous about living with so much less. Then I began to notice all our new stuff... honestly it’s made both me and my wife more conscious about our acquisitions, and we do have less stuff than before. But we ain’t living any kind of minimalist life!

I love your focus on community. I finally have a home where we can host our friends and families comfortably, and it brings us joy to welcome the people we love into our home. I didn’t get there until I was 55.

--- tammy and i reached when i turned 60.., now smelling the roses, family/friend enjoyment, and financially assisting human and animal needs... i found that $"s will not purchase the health i have lost nor the lack of attention for proper direction...

[Bewheels]

Hear, hear.

Plans are great, reality being greater made me think of an amazing quote from Moby Dick about life being about life or life about the living. Will update when I find it!

To add one more "trick".

Create your household/financial life to be dependent on one salary. If you only have one for your household than you are already there.
If you have two, do whatever you can to only live off of one.
There is the obvious reason to do this...you can put away the other salary.
The less obvious reason is that your household can withstand an employment set-back easier.
If your household is completely dependent on two full salary then there is no wiggle room in case one of your employment situation changes. The employment situation can change because of your own choice (a parent wanting to stay at home with little ones, someone needing to care for a relative, etc) or the employment situation can change outside of your choice (employer needing a reduction in force, cut back on shifts/hours, etc).
If you are only living off one salary you can whether these changes.

[rwsaunders]

It can all come to a crashing halt and end suddenly tomorrow too, so make sure that your affairs are in order...life insurance, will, advanced healthcare directive, estate plan, power of attorney, etc. For example, my wife has often threatened to give my bikes, tools and parts bin to a scrap heap if I leave the planet first, so my will has a directive to ensure that they go to a “bike friendly” resource. Hopefully she doesn’t take action before the will is executed.

[ides1056]

This:

"My point of offering this information up is - plans change, priorities change. Identifying when they need to change and actually changing them is critical."

[bigbill]

I retired from the military after 27 years in 2012 and went back to work on my second career as an engineer until 2018 when I took a severance package. Got divorced after the kid graduated from high school, knew it was coming. Said kid is in his second year at Annapolis and doing well so I'm not paying for college, we all are, then he'll serve a five year payback after graduation in 2022. I was recruited to a manager job in Arizona that pays very well and I plan on working it at least until the boy finishes up at the academy. Meanwhile I'm using my GI Bill to get a MA in American History so I can have a semi-retirement gig teaching at community college. My other option is to teach in public schools where I can bring a lifetime of experiences to students and perhaps help them find their way. Financially, I'm good, just packing away in the 401. I have a will, and instructions on my death which will involve cremation and placement at the national cemetery at Little Bighorn.

[caleb]

He’s not wrong about his math

Couple quick thoughts on a this Friday afternoon while I wait for a buddy to go skiing.

In some ways, the emphasis on longterm, total market investment is great in that it allows normal people to plan for the future without tremendous effort.

But where it seems like it's a bit dangerous is that especially in good times like this people forget that most years have significantly below average market returns, and the market has (and likely will) move sideways for long, long periods of time. So, yes, the S&P might return 7% on average, but that's small comfort if you start investing in 1929 and the market doesn't fully recover until 1958. Depression and a World War are hopefully unusual events, but in that era a man's entire working lifetime could have seen no aggregate stock market appreciation. And 1968 to 1992, same story, sideways. And 2000 to 2014 as well. Looks great when you draw the trend line, but there were multi-decade periods of tough sledding.

S&P500 from the 1920s to the present:



When I read about guys who got their first job circa 2009 making six figures, bought a house for peanuts that then quadrupled in value, and are now retiring on a seven figure nest egg, I hope they appreciate the historical abnormality of the tailwinds they've sailed so far.

[fastupslowdown]

Any life-organization wizards on here? I know there are some high earners and probably good investors around here, but that's not what I'm asking about, necessarily. I've just been thinking a lot about our family's priorities, namely investing in the social fabric of which we are a part, our toddler son and immanently due tiny baby girl and the time we want to invest in them, the giving we would like to do, how we spend our work week time, and so on... and as I look at the balance of everything, I keep coming up against high health insurance costs and our high mortgage costs and it seems like "costs" and jobs are in the driver's seat.

We have always lived on less than we made despite being low-earners in humanities fields, i.e. driven crappy cars, have no consumer debt, etc., ... but admittedly we have lived pretty high on the hog as far as food and travel. The sad news flash is, it all turned out the same shade and we spent all that money in someone else's town and we have different priorities now. I am starting to look more at the Mr. Money Mustache way of life (google him if you aren't familiar, probably one of the few not kinda skeezy-seeming proponents of the FIRE movement). While shifting gears to earn six figures just isn't likely to happen, I have the sense there is a path to more freedom. I am still sounding it out.

Is anyone here doing life like this? Anyone mortgage free? Living on dramatically low expenses? What are your stories?

i'm sort of doing this. drive a 14 year old car and have a paid off home. its a lot easier to spend less than earn more on your savings. also not owning too much home makes a difference. cost of carry and all. thinking of giving up my car. the garage keep is ridiculous

-mike g

[caleb]

Year end question, but let me preface it: There is noting lamer than complaining about taxes. First world problems and all that, especially in the middle of a pandemic.

However, bottom line up front: Do any of you work with a tax advisor? Is it worth it? Does it bug you?

My wife and I have always been people who earn nothing but W2 income and take the standard deduction. There's a constellation of circumstances that make me increasingly feel like maybe I'm a sucker for not putting more effort into lowering our tax bill.

- Talking with friends who own businesses or have a variety of income sources, they always seem to be finding ways to reduce their tax liability. It's like an ongoing project for them to see how little they can pay.

- Reading a column with Bret Stephens at the NYT the other day, he casually remarked something to the effect of (paraphasing), I don't support higher income taxes because only professional wage earners pay them. Rich people find a way around them. It's just evidenceless conjecture in the column, but for some reason it sticks in my craw.

- Last (and here's where this constellation got some gravity) the other day I reviewed our tax withholding to make sure we're on track for the end of the year, and noticed that our income tax liability (Fed + State) is twice our discretionary spending (living minus housing), and about equal to all spending. Something about income taxes being equal to the entirety of our living expenses seems off.

This whole constellation of eyebrow-raising interactions makes me think about sitting down with a tax advisor, even if only to have them tell me to shut up and pay my fair share. But does even going down that route make me the sort of guy who tries to game the system instead of just pays into a society that has been good to him?

[jimcav]

Hear, hear.

Plans are great, reality being greater made me think of an amazing quote from Moby Dick about life being about life or life about the living. Will update when I find it!

I can't recall that quote, but recently re-reading Moby Dick after 20-some years. This seemed relevant to the discussion:
"Nothing exists in itself. If you flatter yourself that you are all over comfortable, and have been so a long time, then you cannot be said to be comfortable any more. But if the tip of your nose or the crown of your head be slightly chilled, why then, indeed, in the general consciousness you feel delightfully and unmistakably warm. For this reason a sleeping apartment should never be furnished with a fire, which is one of the luxurious discomforts of the rich. For the height of this sort of deliciousness is to have nothing but the blanket between you and your snugness and the cold of the outer air. Then there you lie like the one warm spark in the heart of an arctic crystal.”

[sine]

edit

However, bottom line up front: Do any of you work with a tax advisor? Is it worth it? Does it bug you?
My wife and I have always been people who earn nothing but W2 income and take the standard deduction. There's a constellation of circumstances that make me increasingly feel like maybe I'm a sucker for not putting more effort into lowering our tax bill.

There is absolutely nothing wrong with being careful with your hard earned money.

To set your mind at ease, you could hire a tax accountant for this filing season. If your situation does not change in future years then you could pretty much copy what the tax accountant did.

We hired a tax accountant when we started a business.

[j44ke]

Year end question, but let me preface it: There is noting lamer than complaining about taxes. First world problems and all that, especially in the middle of a pandemic.

However, bottom line up front: Do any of you work with a tax advisor? Is it worth it? Does it bug you?

My wife and I have always been people who earn nothing but W2 income and take the standard deduction. There's a constellation of circumstances that make me increasingly feel like maybe I'm a sucker for not putting more effort into lowering our tax bill.

- Talking with friends who own businesses or have a variety of income sources, they always seem to be finding ways to reduce their tax liability. It's like an ongoing project for them to see how little they can pay.

- Reading a column with Bret Stephens at the NYT the other day, he casually remarked something to the effect of (paraphasing), I don't support higher income taxes because only professional wage earners pay them. Rich people find a way around them. It's just evidenceless conjecture in the column, but for some reason it sticks in my craw.

- Last (and here's where this constellation got some gravity) the other day I reviewed our tax withholding to make sure we're on track for the end of the year, and noticed that our income tax liability (Fed + State) is twice our discretionary spending (living minus housing), and about equal to all spending. Something about income taxes being equal to the entirety of our living expenses seems off.

This whole constellation of eyebrow-raising interactions makes me think about sitting down with a tax advisor, even if only to have them tell me to shut up and pay my fair share. But does even going down that route make me the sort of guy who tries to game the system instead of just pays into a society that has been good to him?

I think tax liability is often higher than living expenses, especially if you subtract housing. That’s called living within your means. A lot of people are spending 40% of their income on housing however, so while their living expenses may be low, housing eats up money that should theoretically be available for savings. Housing costs are the problem then, not taxes.

My impression is that most people believe that there is some secret code to taxes and if they only knew what that code was their liability would evaporate. The reality is - pure & simple - most people don’t make enough money to see an appreciable reduction in their tax liability through deductions. And if anything, I think the availability of deductions below certain thresholds has shrunk over the last several years.

You might benefit from a good accountant (not really sure what a tax advisor is, but a good accountant can be very valuable) to ensure that your compliance with the tax code is spot on and which deductions are available to you. They can also help make sure any upcoming major investments (house, starting a small/home business) are made with full awareness of the tax liability.

I am always suspicious of people who brag about their tax performance. They may be benefitting from an overworked IRS. You really want to avoid getting audited.

[zachateseverything]

Year end question, but let me preface it: There is noting lamer than complaining about taxes. First world problems and all that, especially in the middle of a pandemic.

However, bottom line up front: Do any of you work with a tax advisor? Is it worth it? Does it bug you?

My wife and I have always been people who earn nothing but W2 income and take the standard deduction. There's a constellation of circumstances that make me increasingly feel like maybe I'm a sucker for not putting more effort into lowering our tax bill.

- Talking with friends who own businesses or have a variety of income sources, they always seem to be finding ways to reduce their tax liability. It's like an ongoing project for them to see how little they can pay.

- Reading a column with Bret Stephens at the NYT the other day, he casually remarked something to the effect of (paraphasing), I don't support higher income taxes because only professional wage earners pay them. Rich people find a way around them. It's just evidenceless conjecture in the column, but for some reason it sticks in my craw.

- Last (and here's where this constellation got some gravity) the other day I reviewed our tax withholding to make sure we're on track for the end of the year, and noticed that our income tax liability (Fed + State) is twice our discretionary spending (living minus housing), and about equal to all spending. Something about income taxes being equal to the entirety of our living expenses seems off.

This whole constellation of eyebrow-raising interactions makes me think about sitting down with a tax advisor, even if only to have them tell me to shut up and pay my fair share. But does even going down that route make me the sort of guy who tries to game the system instead of just pays into a society that has been good to him?

I wouldn't worry about it too much. If you aren't self-employed it's unlikely that there's too much to do. The standard deduction was raised in 2017 and many of the common itemized deductions were restricted. I would still give the itemized deductions an honest effort every tax filing but it's likely that you'll continue to do the standard.

Most of the games your friends are playing are also not as effective as they seem. Yeah, they can claim that stupid SUV they bought or the home office they built as a tax expense and partially offset the cost of the purchase. but they still made the purchase. A lot of people talk about tax deductions like they're tax credits.

I mean, you can still have a sit down with a tax professional to go over possible options but short of committing outright fraud I'm not sensing you'll gain very much.

[davids]

I don't work with a tax advisor, but my wife and I have a financial planner we've worked with for more than five years. And, yeah, one of the things he does for us is minimize our taxes. Things like selling a fund that's lost value and buying a similar one. Like advising me on how to take the proceeds from an annuity I inherited, the gains on which are treated like ordinary income and can be spread over 5 years.

I don't have a problem with taking advice on how to minimize my tax liabilities, under whatever laws are in place at a given time.

But.

I do have a problem with our current tax laws. For example it kills me that capital gains are taxed at a much lower rate than ordinary income. It is seriously fucked up that I pay 15% on capital gains and 24% on income.

And fuck Bret Stephens, too. Rich people find tax loopholes, so why bother with a progressive income tax? Hey, how about we pay a bit of attention to what they're doing and close their loopholes? Might it be because those same rich people are buying the legislators who could close them?

[EDS]

I can't recall that quote, but recently re-reading Moby Dick after 20-some years. This seemed relevant to the discussion:
"Nothing exists in itself. If you flatter yourself that you are all over comfortable, and have been so a long time, then you cannot be said to be comfortable any more. But if the tip of your nose or the crown of your head be slightly chilled, why then, indeed, in the general consciousness you feel delightfully and unmistakably warm. For this reason a sleeping apartment should never be furnished with a fire, which is one of the luxurious discomforts of the rich. For the height of this sort of deliciousness is to have nothing but the blanket between you and your snugness and the cold of the outer air. Then there you lie like the one warm spark in the heart of an arctic crystal.”

If all your income is W-2 income there is only so much you can do (even if your W-2 income is high). If you own a business or your income is tied to invested wealth, you have a lot more tax planning flexibility. The tax code is tilted towards preservation of wealth versus the accumulation of that wealth (and all w-2 income is in the accumulation of wealth bucket and distributions from a business you own are not).

[htwoopup]

I don’t think there is a right or a wrong. While, as said above, you have income that is W2 there is not much to do; I will point out that there are other things on the expense side like medical...while it is unlikely that your medical expenses are high enough to make you itemize rather than do standard there are things like if you pay a premium for any long term care insurance that can add up to maybe getting you close and maybe out of pocket and meds get you over. I will say that I do all of my finances and bill paying in Quicken which makes it easy to figure this stuff out because it forces me to categorize every expense as it goes out the door. Although I will also admit to using a tax accountant to do it every year just because I am lazy and forms of any type give me the cold sweats. I just never look at what my category “Health & Fitness” is because that is where I lump all of my cycling expenses into. I am planning for the day they will let me include that as a subset of “Medical:Insurance”.

To digress a tad because it may be helpful...a consumer tip....H&R Block and all of those types of preparers and Quicken’s tax software for your state that you pay for and the other companies’ software that you can use...they all cost money. But the IRS and the States’ tax authorities have the SAME programs for free on their websites. The deal was that the companies would make the software for the the IRS etc who would make it available to the people and in exchange the companies could charge for it to make back and profit from what they did for the government. That’s according to my sister who used to be in charge of finance for a large state (so all taxes reported to her which is the bad with the good. She always needed police protection bc there was always a nut blaming her for a 5 dollar property tax increase in some little town).

But seriously, as said in a post above maybe use an tax accountant for one year and bring as much info as you can on every dime you spent as best you can categorized into different pots. You will probably still be standard but you will get rid of the gnawing feeling.

[zachateseverything]

I don’t think there is a right or a wrong. While, as said above, you have income that is W2 there is not much to do; I will point out that there are other things on the expense side like medical...while it is unlikely that your medical expenses are high enough to make you itemize rather than do standard there are things like if you pay a premium for any long term care insurance that can add up to maybe getting you close and maybe out of pocket and meds get you over. I will say that I do all of my finances and bill paying in Quicken which makes it easy to figure this stuff out because it forces me to categorize every expense as it goes out the door. Although I will also admit to using a tax accountant to do it every year just because I am lazy and forms of any type give me the cold sweats. I just never look at what my category “Health & Fitness” is because that is where I lump all of my cycling expenses into. I am planning for the day they will let me include that as a subset of “Medical:Insurance”.

To digress a tad because it may be helpful...a consumer tip....H&R Block and all of those types of preparers and Quicken’s tax software for your state that you pay for and the other companies’ software that you can use...they all cost money. But the IRS and the States’ tax authorities have the SAME programs for free on their websites. The deal was that the companies would make the software for the the IRS etc who would make it available to the people and in exchange the companies could charge for it to make back and profit from what they did for the government. That’s according to my sister who used to be in charge of finance for a large state (so all taxes reported to her which is the bad with the good. She always needed police protection bc there was always a nut blaming her for a 5 dollar property tax increase in some little town).

But seriously, as said in a post above maybe use an tax accountant for one year and bring as much info as you can on every dime you spent as best you can categorized into different pots. You will probably still be standard but you will get rid of the gnawing feeling.

one caveat. access to the free e-file is means checked. If your AGI is above $72,000 you can still file online for free but you have to be able to fill out the paperwork yourself.

https://www.irs.gov/filing/free-file...taxes-for-free