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An update:

Thinking about religion things. Sorta complicated topic!

Unfortunately, money is an easier topic to make progress on. Some uncommon favorites of mine:

Stuff vs. Life

Your time to financial independence / retirement can be derived from only your savings rate!

Depending on the situation, not getting seemingly insignificant luxuries like a new car + collision insurance, cable tv, or the frequent latte could save you from years of working!

This leads to interesting questions like: “Do I really want to trade <X> weeks/years of my life for <Y>“?

Note: There are more optimizations/hazards to this. See other MMM posts for the high-level advice or for the complicated details, see ERN: https://earlyretirementnow.com/2017/11/01/shockingly-simple-complicated-random-math-behind-early-retirement/.

Credit Card Churning

The process of opening credit card accounts for the sole purpose of getting the signup bonuses, and then moving onto the next credit card.

See https://www.choosefi.com/009-travel-rewards-travel-world-free-ultimate-guide/ for a great intro, summarized below:

  • Will hurt a perfect 850 credit score, but from what I read as long as you stay above ~760 (easy to do) it looks like banks don't care for mortgage rates. However, one should double check well ahead of time and stop churning if needed.
  • It is untaxed because it's counted as a “coupon” for purchases you made.
  • Takes 15 minutes to sign up each time and several hours of research. Must be somewhat disciplined so you pay off fully every month or utilize 0% intro APR, etc.
  • You do get more for your rewards if you redeem them for travel (flights, hotels, probably not hostels though). However if you're like me and would rather take longer vacations sooner (FI), getting unused miles/rewards in cash seems worth it.
  • Additionally, if you're married you can apply for the cards separately and get double the card bonuses. Scores and rewards are separate, even if your expenses are joint.
  • Potential benefits are $500 cash (or more for miles) for $3-4K of spending in 3 months for each card, to a limit of 5 cards in 24 months, for each person. Not bad!

Increasing The Amount You Can Charge on a Credit Card (Spend)

  • Timing applications with big purchases
  • Buying and reselling gift cards (I don't really care for this one)
  • Paying quarterly estimated tax payments. For me, 20% of my income! That's huge. See below…

Sorta-Quarterly Estimated Tax Payments

The basic idea is that you tell your employer to not withhold money to pay your taxes, and instead you withhold and pay it yourself with a credit card.

Timing / Periods

It's not every quarter!” Spring is 2 months and winter is 4 months. Odd

Legality

Apparently some states don't let you do this? But Federal and Oregon are ok with it.

Federal

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go. Withholding and Estimated tax.

Oregon

Estimated tax payments aren’t a substitute for withholding.

Implementation

Allowances

The way you tell your employer to not withhold income taxes for you is through your W4 form.

How Much?

You need to figure out how much to pay each quarter. While one could use the IRS Withholding Calculator or the above spreadsheet for figuring their 2018 taxes and pay 90% (Federal and Oregon) of it in quarterly installments, a shortcut is just to pay quarterly installments of 90% (Federal) or 100% (Oregon) of your 2017 tax liability. Since it involves less thinking, I'm fine with the latter. To summarize:

Federal

90% (Form 2210 https://www.irs.gov/pub/irs-pdf/f2210.pdf) or 100% (Pub 505 https://www.irs.gov/publications/p505#en_US_2018_publink1000194564) of previous year taxes, in 25% installments every “quarter”.

  • Or if your AGI is > $150K, make it 110%.
Oregon

100% of previous year taxes, in 25% installments every “quarter”.

  • Unfortunately there's a confusing section near the end in the Oregon OR-ESTIMATE form:

Interest on underpayment of estimated tax: You will have an underpayment if you pay less than: • 90 percent of the tax to be shown on your 2018 income tax return (at least one‑fourth on each payment due date); or • 100 percent of the tax shown on your 2017 income tax return (at least one‑fourth on each payment due date); or • 90 percent of the tax figured on your 2018 annualized income

  • According to this section, they consider it an underpayment if you have underpaid in any of the 3 categories! But thankfully further up in the form they clearly say

Enter the smaller of line 13a <90% estimated 2018 tax> or 13b <100% 2017 tax liability>. This is your required annual payment to avoid interest on underpayment of estimated tax.

  • Another reference is page 117 of OR-17, where it says the same thing. Have an email from Christian Kelly saying to use this document and they'll fix OR-ESTIMATE separately.
  • Also, keep in mind that if you have significant tax events during the year (say large dividends, capital gains taxes, selling house), you should pre-pay the estimated tax for that as well.

When?

If you don't have a lot of taxes to pay, you can combine 2 quarters of tax payments into a 3-month credit card window as done in the cash flow spreadsheet. Pretty clever!

Otherwise just be sure that the payment goes through in time (I saw 2 weeks ahead of time for some Federal processors).

Traditional or Roth? (Taxes now or when retired?)

Should I do Traditional or Roth 401k/IRA? Since when you want to pull the money out of the account when you're retired and <not> working, most likely your tax bracket will be much lower! Traditional it is!

HSA

Pay with credit card now and then keep HSA money invested and growing! Very un-intuitive conclusion that I needed to make a spreadsheet for. I still don't believe it! :-)

Returns vs. Risks

Interesting:

And you can time the market to some extent too! (although not totally sure on this) https://earlyretirementnow.com/2018/02/21/market-timing-and-risk-management-part-1-macroeconomics/

Feel free to ask me to clarify anything and give feedback! nolan.hergert@gmail.com

projects/money.txt · Last modified: 2019/03/01 19:05 by admin