Tax Around the World: UK February 15, 2006
In the UK, there are three tax brackets, or bands ranging from 0% to 40%. This covers income after the personal allowance (£4,895 for single people, meaning that 40% is not paid until more than £37,295 is earned).
2005/2006 UK Tax Bands
|
Taxable Bands Allowances
|
2004-05 (£)
|
2005-06 (£)
|
|---|---|---|
|
Starting rate 10%
|
0 - 2,020
(USD 3519.97) |
0 - 2,090
(USD 3641.95) |
|
Basic rate 22%
|
2,021 - 31,400
(USD 54716.38) |
2,090 - 32,400
(USD 56458.94) |
|
Higher rate 40%
|
over 31,400
|
over 32,400
|
(n.b.: as of 2/13/06, 1 USD = 0.573868 GBP or 1 GBP = 1.74256 USD)
Source:
HM Revenue & Customs
Valentine’s Day Average Spend February 14, 2006
How much do you spend on Valentine’s Day?
Valentine’s Spending to Reach $13.70 Billion in 2006.
- The average male plans to spend $135.67.
- The average female plans to spend $68.64.
- Combined male and female consumer spending is expected to average $100.89, $3.62 more than last year.
Of course, it’s not about how much you spend, but how you treat your valentine’s during the year. Remember to think about your relationship and money goals this year!
Source:
Valentine’s Day Retail Forecast
About.com
Falling Wages, Rising Apartment Rentals in NYC February 13, 2006
Since writing about expensive rental apartments in New York City, a new survey was released by city housing officials in NY State. A NY Times article says that while rents have gone up 8.7% from 2002 to 2005, median household income for rental households have gone down 5.6%. This is no surprise given that housing prices have increased so sharply in the past 5 years. The gap between the haves and have-nots is growing. Will rental prices ever go down?
Source:
Affordable Apartments a New York Luxury, 2/11/2006
by Alan Feuer, New York Times
Valentine’s Day special: Love and Money February 10, 2006
I hate Valentine’s Day. It’s a chance for marketers to get you to believe that if you lavish your man or woman with gifts, you will get love in return. It’s not that I don’t believe in love, because I do, and I am an idealist. But it’s the commercialization that I hate about it. It’s a lot of wasted money. What happened to writing a nice note for your love?
If you are already in a serious relationship or married, I think it’s critical to discuss your financial goals. Too many times, I see women who are in relationships who do not care about their finances or leave it up to their spouse. Money represents different things for different people…love, power, security, control, happiness, self-worth. Couples who ignore discussing finances will eventually fight about it. If everything else is going great, eventually not discussing finances will start harboring negative money thoughts about your spouse. For many men, money is a way they kept score. It’s difficult for some men to accept that women can make their own money and take care of themselves. They insist on buying them things or paying for all the dinners. This is a way to present themselves in life that looks good to others. If you don’t know eachothers personal financial thoughts and goals you don’t know what to expect from eachother. And there comes in the marketer during Valentine’s Day. Media, articles, TV, etc will get you to believe that you must take him/her out to dinner…and don’t forget the flowers and chocolates. There are tons of articles out there about what to get your love and how to spend your night out. If you set eachother’s expectations about money in general, Valentine’s Day doesn’t have to be about spending a lot of money to show him/her that you love them. It’s really just another day.
As you “celebrate” Valentine’s Day, think about money and your relationship to money. Do you equate money with security and control? Are you frugal because of it? Are you saving away for financial freedom? Or is your relationship to money linked to how others view you; prestige and self-worth. Are you buying your girlfriend/boyfriend lots of expensive gifts to show her (and other people) what a good person you are? Are these relationships aligned with your real life relationship? If he or she really loved you, they would tell you not to get them anything, because they know you’re working hard to save up and reach your financial goals.
To end, here’s an article from the Washington Post on Love and Money. Happy Valentine’s Day!
Common Tax Bracket Mistakes February 9, 2006
I’ve talked about saving to get to the next income bracket, but I’ve been asked about how we can lower our tax bracket in order to pay less to our government. It’s true that for most of us, we try to make more money by getting a raise, working longer hours, or supplementing our income with another job. But there are strategies to increase your deductions to lower your taxable income. What many people incorrectly believe that in a graduated income tax structure, like the USA has, your tax will suddenly increase by a huge amount when you move into a higher tax bracket. This thinking is what the mortgage industry is taking advantage of…that borrowers will take on larger mortgage interest obligations under the “you’ll pay less tax” theory.
Congress establishes tax rates that apply to different levels of taxable income. Currently the rates vary from 10% to 35%. The higher your income, the higher your tax rate. The range of income where you stay at any particular rate is known as a tax bracket. For a single person in 2005 the rate on taxable income between $29,700 and $71,950 is 25%, so those numbers establish the 25% bracket.
Common Mistakes (from Fairmark.com)
There are several points of confusion that often come up in connection with tax brackets.
Tax brackets and earnings: Some people have in mind the general notion that their tax bracket depends on how much they earn. That’s roughly true. But it doesn’t mean you can hold onto the same tax bracket as long as your earned income stays the same. Your tax bracket depends on your taxable income, regardless of the source of that income. For example, you can move into a higher tax bracket because of increased investment income or a distribution from a pension plan — or even because of a decrease in your deductions.
Sudden change in tax: Another misconception is the notion that your tax will suddenly increase by a huge amount when you move into a higher tax bracket. For example, if your taxable income is in the 15% bracket, but just a few dollars below the 25% bracket, you might be concerned that earning a few dollars more will cause you to pay a lot more in tax. Relax. The first $100 dollars you earn in the 25% bracket will cause your tax to increase by $25. You still pay only 15% on all the money you earned below the 25% bracket.
Tax brackets and withholding: Don’t confuse tax brackets and withholding rates. The relationship between your tax bracket and the amount of tax your employer withholds is very indirect. Withholding rates are based on averages, not specific tax brackets. For example, your withholding rate may be about 20%, even though there’s no tax bracket between 15% and 25%.
Borders between tax brackets: Your taxable income may happen to fall very close to the border between two tax brackets. If it does, you can make a mistake when you use your tax bracket to estimate your tax consequences.
Example: You’re single and your 2005 taxable income is $29,600. That puts you in the 15% tax bracket. But if you have an additional $1,000 of taxable income you’ll pay almost $250 more in taxes. The reason is that even though you’re in the 15% bracket, you’re very close to the 25% bracket.
Tax brackets and marginal rates: In some cases the added tax you pay when your income goes up isn’t the same as your tax bracket. That’s because the added income can cause you to lose some other tax benefit. For example, added income can mean smaller itemized deductions or a reduction in the amount you claim for your exemptions. You may find that $1,000 of added income causes your tax to go up by $292 even though you’re in the 28% bracket. Your tax bracket is just an approximation of the added tax. To be more precise, we would say you have an effective marginal rate of 29.2%. In most cases, the tax bracket is close enough to the effective marginal rate for purposes of making investment decisions.
So yes, we can lower our taxable income, but keep in mind that real financial freedom comes from saving more, not spending less on taxes.
Source:
Fairmark.com Tax Guide for Investors
Thank you for the information!
Thoughts on “The Broke Generation” February 8, 2006
There’s an article that interviews Tamara Draut, the author of Strapped : Why America’s 20- and 30-Somethings Can’t Get Ahead about why people in their 20s and 30s feel that they can never get ahead with their finances.
Draut claims the gloomy conditions have less to do with extravagant spending habits and more to do with skyrocketing housing prices, college tuition increases, credit card debt, depressed wages and increasing health costs.
I have to agree that although there are lots of 20 and 30 year olds who are “Lazy. Spoiled. Irresponsible,” there are many who just can’t get ahead due to rising housing prices, tuition, and gas prices. For those who are doing everything they can by saving and paying down debt, things will get better. Paying down $200 here and there every month doesn’t seem to make a dent on your credit card balance, but with discipline, the debt goes away. The 20s and 30s is a period of self investment and sometimes that means a big investment in university and graduate school, so getting to the next income bracket is not in the forefront of their thoughts.
update (2/9/06):
MSNBC’s article from 2/8/06 also discussees the Broke Generation, or ‘Generation Debt’. One stat that grabbed me is:
Between 1983 and 2001, credit card debt for 25-to-34 year-olds nearly tripled, according to the Federal Reserve, from $3,989 to $12,000.
$12,000! I had credit card debt after college for $5000 and I thought I was never going to pay it off. But $12,000 is pretty steep, given that many first college graduates don’t make too much more than that. Draut talks about selling her CD collection to pay off her loans, but nowadays, college students don’t have a CD collection to sell, since they’re downloading their mp3 music onto their iPod.
How do these people have so much money?
Do you ever wonder how people have so much money to spend? How does someone buy a house or apartment in NYC or LA and have huge mortgages and still go out to eat most nights of the week or go out to a bar and spend hundreds of dollars? I used to go out and buy rounds of drinks for friends but that was when I was young and didn’t worry about how much things cost. I still go out and have fun, but my priorities have changed. Now that I’ve set a goal and created a budget, I think about the consequences of buying things or going to a restaurant.
For the people who actually have a lot of money to spend, have they already funded their retirement account? Or do they have an emergency account of 6 months? I have some friends who work on Wall Street and although some of them make a lot of money, they spend whatever they earn on housing, entertainment, and nice things, especially with their huge Wall Street bonus this year. But some don’t worry about the future.
For those who don’t work on Wall Street and get $125,000 bonuses, we have to think about living below our means and putting away as much as we can to reach our goal of financial freedom. You can either save more or make more. For many, making more money involves a lot of planning and searching for a new job, so an intermediate step is to save more. No more bottle service at the South Beach bars!
How will Bush’s budget proposal affect your taxes? February 7, 2006
Despite heated protest from the US Congress, it’s good to see Bush creating incentives for people to save money in his budget plan for 2007. In his plan, he asks Congress to kill the estate tax and create new tax-favored savings vehicles to encourage people to increase their savings. He wants to cut the rates on long-term capital gains and dividends (15%), which are now set to expire at the end of 2008, and on personal income taxes, now set to expire after 2010 (The top federal tax rate on ordinary income is 35%.). This would protect more taxpayers from the AMT, a parallel tax system originally designed to prevent upper-income taxpayers from avoiding taxes altogether through the use of deductions and credits. But because it hasn’t been adjusted for inflation, the tax is reaching further into the middle class each year. The number of taxpayers getting hit by the AMT is expected to jump to 22.2 million people in 2006 if Congress doesn’t take action.
It will be interesting to see what gets approval in the coming weeks. Let’s hope it favors tax payers and not increasing government spending.
Source:
Bush’s Budget Seeks to Preserve Tax Cuts
By MARY DALRYMPLE, AP Tax Writer
Evaluate your spending more February 6, 2006
I came across this older Motley Fool article about living below your means. This key quote made me think about how I use money:
A lot of people seem to see frugality as money-grubbing, or selfishness. I guess we can’t expect everyone to see things the same way. For me money is useful for the independence it provides. It’s not to accumulate it so that you can buy more stuff. It’s to accumulate it to get it working for you so that you won’t have to work at some point.
We don’t evaluate our perception of money and how we use it enough. By doing this, we can sacrifice the things we really don’t need to buy (like that Starbuck’s coffee or another pair of shoes) and make the goal of financial independence more likely. I’ve recently started asking myself more and more how I can make better use of my money. For example, last month, I switched my phone provider from Verizon to Vonage (more on this another day). I consider my land line essential at this point, but by switching carriers, I went from spending approximately $80 per month to a flat fee of $14.99, saving $65. Now how do I use my $65 to make it work for me? For now I put it in savings, but after a year, that’s $780 savings. How can you evaluate your money more often?
« newer posts