This was a light bulb moment for me years ago...

Be Savvier With Your Earnings - invest in stock of companies for long-term capital gains.

I spent some time reviewing the latest 2023 short-term and long-term capital gains tax rates. This works for married couples too.

The most important realization is that individuals can all earn up to $44,625 a year in long-term capital gains and pay 0% tax rate if they have no other income.

Could you live off of $44,625 a year without debt? I think most of us could with no problem.

Therefore, one of our financial goals should be to accumulate enough capital to spit out $44,625 a year in qualified dividends or long-term capital gains. At a 4% rate of return, that's what $1,115,650 invested would generate. Doable!

If I paid more attention to ordinary income and long-term capital gains tax rates in my 20s, I would have been even more strategic about how I spent my time earning. Further, I'd be less stressed given the grind to make more money is endless.

Once you come up with some realistic financial goals, you'll feel better about your efforts to get there.

[Working paycheck to paycheck is for people who are bad at math and don't understand the tax code]
[www.cnbc.com]

Edited 1 time(s). Last edit at 02/14/2023 12:35PM by maverick1.

Most of you? I know we could never, ever live on $44,625/year. Every situation is different. I do agree with you regarding living paycheck to paycheck. High stress. :-)

I am sure that it depends to some extent on where you live. The average household income in NJ is $85,245

@Madetoshop wrote:

Most of you? I know we could never, ever live on $44,625/year. Every situation is different. I do agree with you regarding living paycheck to paycheck. High stress. :-)

It depends on where you live and on your particular situation. Hubby & I live in SC and have our rural home paid for, no debt other than monthly bills like utilities, insurance, food...stuff like that. Both our vehicles are old (2003 & 2001) but we keep 'em running and they are doing fine so far! (Someday they'll conk out on us!) Our annual household income is from our Social Security checks, my MS'ing & Merch'ing part time, and his part-time umpiring in the Spring thru Fall. And all that together totals up to around $38K/year. Plus we get around $2000/year in interest on annuities, so about $40K/year. We do tithe our income to our church, so that basically puts our living wages at around $30K/year. We have had to repair our furnace, our cars, repair outside stairs and posts to our home, stuff like that. I do most of my clothing shopping in thrift stores. And grocery MSing helps a lot. We live happily and within the means we have. But we couldn't live on this income in many parts of the country. We are grateful for what we have and where we are.

Edited 1 time(s). Last edit at 02/18/2023 05:52PM by guysmom.

^^^Thank you guysmom for sharing your personal experience. I sure do know it depends on where you live, lifestyle, investments, net income, circumstances, etc. but if we were to live on $44K+ that would not work. Our costs alone for a monthly commutation ticket is over $600/month for DH and me. However, my employer has added commutation costs, breakfast, lunch as a perk since the pandemic. It is added to my salary so I must pay taxes on it. I cannot complain. When we do need to cut back, it's entertainment and fluff expenditures first.

One advantage of being able to live on less income is that we have no tax liability when we do our taxes, since our "taxable" income comes from our part-time jobs and the little bit of interest we get on the annuities. Since there's some sort of formula that allows seniors on Soc Sec to cut their amounts in half on their IRS Form 1040, (<<<<< I may not be explaining that just right), those of us with a smaller income at least get a break come tax time!

Edited 2 time(s). Last edit at 02/18/2023 11:57PM by guysmom.

@myst4au wrote:

I am sure that it depends to some extent on where you live. The average household income in NJ is $85,245

I looked it up...actually that is the median, the average is higher due to high wage earners.

Thanks for the correction. Websites play fast and loose with averages and medians. I am sure that you are correct.

@maverick1 wrote:

@myst4au wrote:

I am sure that it depends to some extent on where you live. The average household income in NJ is $85,245

I looked it up...actually that is the median, the average is higher due to high wage earners.

@Madetoshop wrote:

Most of you? I know we could never, ever live on $44,625/year. Every situation is different. I do agree with you regarding living paycheck to paycheck. High stress. :-)

You couldn't huh? Well, here is a family (husband retired at 33 years of age - civil engineer) in a southeastern US state. Check out one of their budget breakdowns to see how they do it.

My point above was that the first $44K was federal tax free per individual (double that for a married couple). After that there is a large window at only 15% tax. You work hard when young to make maximum income, invest in US stocks until you have a net worth of 25X your annual expenses. Then you can retire early.

[rootofgood.com]

Edited 2 time(s). Last edit at 02/19/2023 12:41AM by maverick1.

No, I could not. I see your point and realize the first $44K is federally free of tax. As an aside, our state income tax rate is HIGH. Still, we could not do it. WE work hard and play hard. If we couldn't, we wouldn't play so hard. :-) I see a lot of our required monthly expenses not listed in the URL/article posted. RE Taxes, commutation costs, $31 for gas(?????), home insurance, car insurance, health insurance is way greater than $35 even if we are insured by our employers just to mention a few. My employer takes out over $100 from my paycheck for health insurance every two weeks (family coverage) and my DH has a big deduction as well. I am thankful that it is a great plan and all of our dependents are covered. The amounts for utilities and groceries are wishful and not at all realistic for what we incur. MY point is, I know it's do-able for some but not for many others. I so enjoy your posts and look forward to seeing others post with their viewpoints and experience.

@Madetoshop wrote:

No, I could not. I see your point and realize the first $44K is federally free of tax. As an aside, our state income tax rate is HIGH. Still, we could not do it. WE work hard and play hard. If we couldn't, we wouldn't play so hard. :-) I see a lot of our required monthly expenses not listed in the URL/article posted. RE Taxes, commutation costs, $31 for gas(?????), home insurance, car insurance, health insurance is way greater than $35 even if we are insured by our employers just to mention a few. My employer takes out over $100 from my paycheck for health insurance every two weeks (family coverage) and my DH has a big deduction as well. I am thankful that it is a great plan and all of our dependents are covered. The amounts for utilities and groceries are wishful and not at all realistic for what we incur. MY point is, I know it's do-able for some but not for many others. I so enjoy your posts and look forward to seeing others post with their viewpoints and experience.

I don't believe you really absorbed what I shared. That family is on ACA healthcare. They don't work. They are retired. They don't need to commute or work attire. Etc., etc.

I understand most taxpayers are not good at simple math. A paycheck wage gets taxed at high rates vs. the low tax rate of stock long term dividends.

Maybe you haven't seen the news...there is a wave of citizens moving from high personal income states like CA and NY to lower tax areas such as TX and FL.

A "few years" ago, there was a "party" at a city waterfront where tea was dumped protesting taxation.

I protest tax legally by taking action to minimize the impact on my income and net worth.

Maybe you live in a bubble? Read this >
[www.mrmoneymustache.com]

Maybe you live in a bubble. I live in one of the states where you say citizens are moving from my state to places like Texas and Florida. I have read over and over that most of the migration is lower and low middle income people. Older people have always moved to other states but usually it is those with smaller savings. No one I personally know would be interested in moving to either of those states. For example a friend works for Disney. A year or more ago they announced to hundreds of employees that their divisions were moving to Florida. Almost no one decided to move. Disney hired all new people to fill those positions and then the move actually did not take place due to difficulties later on between Disney and the state. In Texas the move pretty much has to be in Austin or the local people here in California will not move.
As to income, basically from here I would have to move to live on $44 K a year. Many earning that much here are living in their cars. I would need to sell my house and rent but then I would have a lot more income from investing the money after selling my house. Yes you can live in a SRO for less or share your abode with a bunch of strangers or family members who are helping with the expenses out of their 44K a year. But in that case you are not free to choose to live alone. SRO means single room occupancy...a place to sleep with a hot plate and perhaps your own bathroom. Without a car there are limited places you can go here. Certainly mystery shopping would be out of the question. And choosing to have insurance through the free government programs, although they are very generous in California, would greatly impact my ability to get timely and thorough appointments.

Edited 1 time(s). Last edit at 04/13/2023 03:52PM by sandyf.

Ooh, I like this topic. I wish I had known more about the impact on taxes and accumulating wealth in my 20's. There were two pieces of advice I got in my 20's that stuck with me - this should be your accumulation phase of life, and cars and taxes are some of the biggest detractors of wealth. At the time, I made enough to survive but not do much in terms of "accumulation". I invested in my 401K and had a savings account, that was about it. Now I understand a lot more about IRA's, I-bonds, cd's, etc.

Now, I have a family of 4. When we lived just outside Chicago, 44K wouldn't go very far. Property taxes on our house were 7K. Sales tax was at a 10% rate.
We moved to Indiana and property taxes are 2K, sales tax is 6%, and it wouldn't be a super luxurious lifestyle, but we could do it. My husband and I are in our 40's, so we would have to live off the investment income and not withdraw from the investments until we were at least eligible to get SS, or we could work part-time.
In both cases, it would require the mortgage to be paid so we just have utilities, insurance, etc.

It is a great topic, and indeed one that should be taught in school. Problem is that you can't because parents up to their eyebrows in debt view it as judgmental if their kids ask questions about family practices and become aggressively defensive.

By far the most important step is the first one, and that is figuring out where you spend your money right now and sorting it out on paper to categories such as food, clothing, housing, utilities, entertainment, transportation, insurance, taxes, savings, charity, interest (other than mortgage or car payment), education. Honestly done, you are likely to see areas of imbalance which you can address to reduce. Over a few months you should be able to come up with a budget that will allow you reduce interest and start saving more.

I retired at 56 because I could. I have paid very little to IRS since and no State or Local income tax. Property taxes and insurance have gone up drastically. I pay for everything possible using credit cards to keep track of expenditures (yes, I still keep a budget), and pay them off in full each month so have no interest charge. I began collecting SS at 62 and used those early payments to pay off my mortgage early. Several years ago I bought a new car and bit my tongue as I financed it at 2.7% because my investment account was growing at about 20% so my money was making more money in the stock market. My bills (including car payment) were about $100 more than my SS last month. I am now 75 and not mystery shopping much because there is still too much leftover already in my household budget

My kids have been trained . . . maximize your 401k (and choose the Roth version if offered so you pay taxes on money going in, but not when you pull it out after 59 1/2). Maximize your Roth IRA contribution annually. Invest for the long run rather than gamble on a 'hot tip'. Buy your home rather than rent if you plan to live there more than 2 years.

I am already older but because I am I can tell those younger that you really need to pay attention to warnings about big expenses you did not figure into your budget. If you are retired early and living on a very slim budget already to make it with your savings then you are in danger of being broadsided at some time in the future if some expenses come up that you did not expect. It could be an illness requiring some larger expenses to be comfortable and get the best care, or it could be an accident again with medical and care expenses not built into your budget. It could also be a market crash that affects your savings and how much capitol gains they give off in the future...Or your car or if you have two, both could finally break down and you will have the expense of replacing one or both of them within a short period of time. Do you have these in your budget?
I also find it curious that you are mentioning this "A few years" ago, there was a "party" at a city waterfront where tea was dumped protesting taxation. smiling smiley I protest tax legally by taking action to minimize the impact on my income and net worth."
I have tried to do the math myself but somehow I have not yet figured out how those who are trying to avoid paying taxes at the same time are trying to live cheap with having government aid to help them out. "I don't believe you really absorbed what I shared. That family is on ACA healthcare"
I am not saying you are doing this but you are mentioning this. How does that add up?. People who do not want to pay any taxes and yet want the government to bail them out. I know this might seem like a political statement but for me it is a statement for me of pure mathematics.

Saving and avoiding taxes are great if you have enough income. For older generations, at least those who were allowed to fully participate in the economy, saving was much easier. Younger generations don't have subsidized colleges like before, or cheap home prices that allowed them to build wealth, or the same availabilty of jobs with benefits such as pensions or 401-Ks. Eventually there will be a tipping point where younger generations will eliminate the loopholes that allow income generated by wealth to escape taxation. So I guess take advantage while you can.

Here's another data point today...focus on wants vs needs...

"It looks increasingly likely that Americans' credit-card debt is on track to hit the $1 trillion mark this year, and experts say that this number could be an indicator of a looming economic downturn." - Marketwatch

Let me explain another way with cars, an item most of us own.

My first car had a single exterior mirror on the driver's door. When you wanted to adjust it, you rolled down the window to move it.
My next car had a single mirror adjusted from inside via a cable.
My next car had a mirror on EACH front door with the driver's door mirror adjustable from the inside.
My next car had two mirrors and BOTH were adjustable from the inside.
My next car had BOTH mirrors adjusted from the inside AND they were heated to remove ice in winter.

With regards to car mirrors, what are your "wants vs. needs?"

Mr. Money Mustache takes this further (maybe to an extreme) here:
[www.mrmoneymustache.com]

Living on $44K a year sounds awful. I enjoy nice vacations, pro sports events, live concerts, and plan to travel to Europe and Africa with my husband. We will help pay for our grandkids’ college tuition. I spent my 20s driving old beater cars and budgeting every dime. We climbed the property ladder for 40 years with sweat equity and some smart investments, paying our fair share of taxes along the way. We plan to truly enjoy our retirement and not pinch pennies and deny ourselves for decades.