February Self-Tax Update

Since I haven't written another post on my "Self-Tax" since the initial one, I thought it would be wise to write a quick follow-up.

For those too lazy to click the above link and read the general premise behind my self-tax, it's okay; I totally understand. Here's a nine-word breakdown:

I pay myself a 10% tax on poor purchases.

That's it.

Anyway, it's been four complete months since the implementation of the self-tax, and it seems to be pretty effective. Since January, spending on lunches out has dropped by over 60%, and since MLB doesn't really eat lunch at restaurants very often, it's been mostly because of my choices. I can definitely tell you the decision to eat a packed lunch or a Wendy's hamburger (oh, baby), has been affected by the penalty of the tax. Well, the tax and the fact that I had to move my belt tab out a notch in January. Ouch.

So, for the rest of the data freaks, here are the numbers and the matching lame excuses for January and February:

January: $193.65 paid in tax. This was pretty high for a couple of reasons. First, I threw a small birthday party for MLB, and I had to buy prizes, food, and some other odds and ends. That drove the number up. Also, we replaced our CRT monitors in the office with some pretty 19" LCD ones, which kicked the tax up by over forty bucks. The good news is that the tax from dining out dropped by almost 70%.

February: $254.31 paid in tax. I can blame a sizable portion of February's tax on MLB. She went on a bit of spending spree for clothing (deservedly, though), and had a rather pricey hair appointment, so that punched it up about seventy bucks. Add in a payment to DD's daycare (boy, does that topic deserve it's own post), and a new color printer for the office, and some passport renewal fees, and the result is a sky-high tax. Again though, dining out spending was way down from December.

So, all things considered, the tax has brought down our expenses by more than enough to cover the tax itself, as well as put a little additional money into savings. Both are very good things.

YFNN

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)
- charity
- healthcare/medical/prescription

is taxed.

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.

YFNN