It’s too much! I don’t know if I’ll get it right! I don’t have any money already! Keep this up and most likely you never will. Somehow, someway we’ve turned the task of saving $100 per month towards investing into a daunting task that can never be achieved. Not so…let’s get to it there’s some money somewhere in your income that can be used to initiate investing let’s find it.
STEP ONE: W-4
This is form usually provided by your employer is used to determine withholding tax. To be clearer this form determines how much money is withhold from your pay check to cover federal taxes. My goal here is to keep this as simple as possible as to provide action steps one should and could take to discover money they already have. If every year you are receiving an income check you need to readjust your W4 form, clearly you are overpaying in taxes. Some people see an income tax check as a automatic or forced savings plan…this is not a wise solution in my opinion.
Let me explain why: For a whole year you have been putting money aside…this money has not been earning it’s just been sitting around doing nothing…at least nothing for you! Let’s say you made $10/hr which equals a salary of $20,800. Well to adjust your W4 you need to see which tax bracket you fall under.
2016 IRS Tax Brackets
|Tax rate||Single filers||Married filing jointly or qualifying widow(er)||Married filing separately||Head of household|
|10%||Up to $9,275||Up to $18,550||Up to $9,275||Up to $13,250|
|15%||$9,276 – $37,650||$18,551 – $75,300||$9,276 – $37,650||$13,251 – $50,400|
|25%||$37,651 – $91,150||$75,301 – $151,900||$37,651 – $75,950||$50,401 – $130,150|
|28%||$91,151 – $190,150||$151,901 – $231,450||$75,951 – $115,725||$130,151 – $210,800|
|33%||$190,151 – $413,350||$231,451 – $413,350||$115,726 – $206,675||$210,801 – $413,350|
|35%||$413,351 – $415,050||$413,351 – $466,950||$206,676 – $233,475||$413,351 – $441,000|
|39.6%||$415,051 or more||$466,951 or more||$233,476 or more||$441,001 or more|
So as you can see from this info provided from the IRS website your tax bracket is 15%. Your salary OF $20,800 falls with the tax bracket of 15%. Want the exact number? 12.77%
Tax Year 2016
Filing Status: Single Taxable Income: $20800
Tax: $2,656.25 Tax as % of Income: 12.77% Tax Bracket: 15%
Feel free to jump over to the IRS website and do your own calculation real quick to determine your exact tax rate. Got it ok now let’s keep going….
Now here’s a divide because some will tell you to get all your money now, which isn’t a bad idea. Yet others will say adjust your W4 so that by year end you have satisfied your amount due. Which either way you choose is I’m okay with. Though I like the option of investing now rather than later, it’s your choice. So let’s take a look at the money we’ve been missing: $2656.25 per year. Per month $221.35! Yes can you see it now….you’ve been missing out on $221.35 per month!
Now let’s see what happens if we invest $221.25 for one year…because before you were putting this money aside and you didn’t ever realize it. Right? If this was invested over a 5 year period at 9%.
- 1st Year = $2,789.69
- 2nd Year = $5,599.99
- 3rd Year = $8,674.90
- 4th Year = $12,039.36
- 5th Year = $15,720.62
According to radio show host, Dave Ramsey, the average is S&P 500 is somewhere around 12% and we used 9%. Hopefully you can see the benefits of investing now rather than later. Yes? I wish somebody had told me years ago about this. I was throwing money away like crazy and I could have easily invested my money so that it was working just as hard as I was. Don’t judge me…we all, ok… most of us wasted money in youth simply because retirement isn’t something that youth think about…furthermore most people don’t believe that they can be a millionaire or have increased wealth due to their surroundings, environment, education, self-worth, self-esteem or just simply how they think and view money as a whole.
Investing isn’t as hard as we once thought it was, sure it comes with certain complications. One thing is certain though, if you never invest your money doesn’t stand a chance at gaining interest. My10cents, revisit your W4 ASAP!