The Basics of Financial Independence: Maximize your savings rate

3. Maximize your savings rate.

• The first step is to find out your current spending rate. The usage of a free app such as Personal Capital may prove very helpful in this arena. Once you have all the data of where your money is going you should try to align it with your goals (travel, photography, etc). Spending that isn't aligned with your goals is where you should be doing your significant cuts (Ex: junk food when you are trying to get into shape). I have found that this review alone is usually sufficient to get folks on the path to success.
• Do not negate the savings achieved through discounts or cost cutting on ongoing items such as cellphone plans, cable bills, car insurance, childcare, commuting, etc. Some of these can be achieved via shopping around or via group affiliations (employer, alumni, professional organization, etc). Depending on your tax bracket and the state you reside in every dollar saved on these items can be as high as ~$1.50 in wages. As you can see, with some diligence this can translate into yearly savings of thousands of dollars in wages.
• Finding ways (side gigs, promotions, etc) to earn more money is just as important. Maybe that travel you love to do can turn into a travel blog that you can use to generate ad revenue. Maybe that job opening above you is something for which you should apply. The point is you are only bounded by your imagination when it comes to additional sources of income. For example, I know a few engineers who make a lot of side money in real estate investing (both rental income and house flipping).
• And last but not least get the most out of your employer via pension/401K contributions, HSA contributions, employee stock purchase plans that provide a built-in discount and tuition reimbursements for education/training that will improve your earning potential. This can be the most lucrative (Hint: some are tax FREE) and yet it is often the most overlooked.

Taxes

I am willing to lobby hard for anyone who simplifies the tax code. I mean, why all this crap of deductions, exemptions and subtract the lower of line 8 or 9 from line 10?? What is that crap about? You would think with the all the advances in tax preparation software, online tax portals, e-filing and the simple fact that I have been doing this for a very long time now the process should be easy right? WRONG! This thing is getting worse by the minute and it says a lot coming from me since I don't itemize.

I am so down for a national sales tax or just a flat tax across the board on everything. This process is dare I say, "taxing" on the mind, body, and wallet/pocketbook. I guess I just needed to rant about this for a second or two after agonizing over my taxes for the last 4 hours. And yeah, I owe but it is perfectly within my acceptable range. Could have been much worse.

I think next year I may have to go see a tax professional. Ya think?

Tax return choices...

If you are one of the lucky few out there who will be blessed with a big tax refund and would like to know what are some of the best options during a recession like economy then here are some top choices:

1. Shore up your short term reserves
Normally, this would be #2 but in an economy like the current one, having some reserves is a pretty good idea. How much you say? Personally, 3 months salary works for me but many experts recommend 6 months. My personal favorite for this would be ING Checking where you can get a free $25 just for opening and funding an account with a minimum of $250. That's an instant 10% by my calculations not to mention the 2% APY on a CHECKING account.

2. Pay off any high interest (>3%) debt
Assuming you have short term reserves, paying off high interest debt is always the BEST thing to do. I mean, it doesn't take much sense to see that if you are earning 5% (before taxes) on your investments but paying 8% in interest that you are losing the fight. A beatdown to be exact.

3. Continue to fund your retirement
More specifically, continue to fund your (401K, Roth IRA, Roth-401K, IRA, etc) accounts. As always, if your employer matches your 401K contributions you should contribute the minimum to get the maximum employer match. Free money is free money. With regards to fund selections it is always recommended to find low cost broad index funds and I continue to receive the best service with a wide array of low cost choices from Vanguard.

4. Adjust your withholdings
Yep, if you don't want a repeat of getting your own money back next year interest free you may want to adjust your witholding. Ideally, you want to shoot for break-even ($0 refund/owed). In the situation where I must lean one way I prefer to owe the IRS a SMALL amount than having them owe me. Hey, last I checked they don't pay interest.