I’m feeling 22-oo-ooh…

But not like Taylor Swift.  That brat had the nerve to write that song when she was actually 22 years old.  I take this pandering as an insult on behalf of us Slightly Older Ones.

No, I am feeling 22 because I realized that I currently live off exactly what I was making when I was 22 years old.  Let’s see… Youtube had just been invented, and the first episode of Colbert Report aired, and I was working hard at my first job making a cool $1800/month.

In my last post I speculated that it makes sense to save your money and get into passive income streams because you stand to save a lot of money that way from taxes.  But the critical juncture in that plan is quitting the day job.  When do you do it?  MMM defines this as the point at which the income from your investments matches your cost of living.  Which is why I looked into my current cost of living. One part of me delights in this idea because I could surely find things (such as rental property) that could make me $1800/month.

On the other hand, I remember feeling really crummy and scared when I was 22 because I was living so close to the edge.  I literally had no money cushion at the end of the month.  I wouldn’t want to save save save and then go “retire” only to be limited to a cost of living that reflects my first job and which I sustain now mostly through loan-payoff austerity.

And it’s not just about lifestyle – you obviously want to be covered for unexpected expenses.  I would be concerned that an investment portfolio that is just barely meeting your regular, budgeted costs would be sunk if you need to take a chunk.  Interest needs principal.

I actually know someone who is building rental income and plans to quit his job once his rental income matches what his day job makes him now.  That is a more conservative approach: get out based on what you currently make, not spend (which is presumably less).  It’s got much more safety margin, if you have the patience.  I am willing to bet that he would have the time to grow his business anyway if he were to quit his job earlier.  But it’s a personal choice.

I guess it depends on whether you want to try to be infinitely rich, or just want to find a reasonable way to leave your job and pursue self-employment or retirement.  If you took it to an extreme, I am sure you could keep working your day job and make all kinds of crazy rental income – and never sleep!  But based on the tax system, I just do not see why you would want to commit 40 hours of your week to making 25%+ taxed income if you have the wealth to allow you to spend the 40 hours pursuing lower-taxed income without worrying about going broke.  I think I would like to be somewhere between Able to reasonably leave my job if I wanted to, and Scrooge McDuck.  Aiming for the former because it seems easier to achieve and happier despite Scrooge’s gold coin swimming pool!

In the meantime, I have checked out a couple books from the library to continue my education: one on the current US tax system (to get really clever about taxes), and one on the Whiskey Rebellion, a.k.a the first major tax hellride in our fine country’s history.  I like to read history to see how people raged about things that upset me now.  Muskets really spice up tax law.

What do you make of income tax?  And what is the right time to go to the Tax Matrix?  If you have some sort of linear programming formula that determines this, please share!

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3 thoughts on “I’m feeling 22-oo-ooh…

  1. haha- i wish i remembered what I made at 22! i do like living below my means… i worry wayyyyyy too much to be the kind of person living with no cash cushion at the end of the month.

    can’t wait to hear what you learn about taxes 🙂

  2. I can’t think too hard about income taxes without getting angry that it’s not a consumption tax instead. The fact that the government subsidizes people to consume real resources is one of the inanities of our time.

    What I’m feeling as I’m building more wealth is that the freedom you earn for yourself is gradual. When I was under $30k of student loan debt, I was staring into the abyss of this dichotomy between wage slavery and financial independence. Now I’m realizing that the 4% rule (or 3% rule) is more of a guideline — if you really have over half a million dollars, it’s no big deal if your investment gains don’t cover your expenses for a year or two. Once I get to around $250k in cash and investments, hopefully some time this decade, I’m going to have a significant amount of freedom to play with. Wouldn’t it be cool to just take three or six months off of work? That can be a reality a lot sooner than complete financial independence, and it feels pretty good to think about 🙂

    Hey, keep thinking deeply and blogging about it. This is great stuff.

    • Thanks MA! I originally had a little blurb about consumption tax in here but decided to save it for another post dedicated to that topic. Tax.. where finance becomes political. I’m cool with that though – I was interested in the 2012 Libertarian candidate Gary Johnson (not that he got that far), and first really heard about consumption tax then (he is for it). It is an interesting idea, because in theory it taxes optional spending rather than working (where in theory you are trying to do good for society). It would promote low consumption, but I’m not sure if that would cause other effects such as poor market behavior. It seems like a radical idea at this point but Alexander Hamilton wrote about it in the Federalist Papers so it was central to our nation’s political planning at one point…

      I think people mostly have an innate desire to contribute maximally to society through their work, and also to survive and thrive financially as a form of self-preservation. Duty to self and society. So I don’t want doctors to have to get unduly taxed on their high income which rewards their extremely stressful and crucial service to society, but I don’t mind the idea of their being taxed on optionally pursuing a fancy schmancy doctor lifestyle, if that is what they choose to do with the wealth. If the tax has to come from somewhere.

      You’ve given me something else to go read up on, thanks!

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