Sunday, February 25, 2007
My "Self Tax" and Initial Results
This post is based on one of the "blog inspiration emails" I've sent to family recently.
I'm a big personal finance person. I enjoy shuffling money around, managing expenditures, and budgeting. I strive to make good financial decisions, plan effectively, make the best return on my money. I absolutely LOVE automatic savings and investments and forced savings. I like crazy ways to save more money. Basically, I'm a money nerd. So, I came up with my "Self Tax":
I'm forcing myself to pay a 10% "tax" on items that are unnecessary or poor choices. This not only forces me to reconsider most purchases (after all, a 10% tax is a stiff penalty...even a quick dinner at Wendy's costs an extra buck), but it forces me to put an extra amount into savings every month.
Here are my criteria for the tax. Essentially anything that is not:
- a regular bill (mortgage, cable, insurance, electric, etc.)
- groceries (since we SHOULD be eating at home as often as possible)
- a gift (we shouldn't be taxed for giving)
Really, what it comes down to is that anything that is discretionary is taxed. This forces me to reconsider meals out, movie tickets, and other unnecessary or unhealthy purchases.
So, our self-tax for December came out to be $147.07. So, that money was transferred to a high-yield savings account today, where it can earn 4.5%. After $500 has accumulated in that account, the money will be transferred to a Roth IRA (the reason it's not directly placed into the Roth IRA is to limit the fees in the IRA...I pay per trade), where it can supplement our retirement. Woohoo!
So far the plan has been successful. Expenses for December were actually slightly lower than previous months, and I was able to put more money into savings, both of which are good things. I think that over the long haul, this tax will force both MLB and I to reconsider purchases and keep expenses down.
Is this necessary for us? Not at all, but MLB and I don't really deny ourselves very much. To be sure, we can live more frugally without giving up much. This seems to be an effective (and call me crazy: fun!) way to save a bit more.
Am I a total nerd? Absolutely. Am I lucky to have married a woman that will put up with this crap? Unbelievably.