April 2017 Atypical Life Income Report

Welcome to the fourth monthly income and expense report from the Atypical Life family. We are pleased to share this with all of you, so that you may have the inspiration to achieve financial independence and freedom from the man sooner. As an atypical family, this income and expense report will look very different to most family budgets, however, it is 100% real and is achievable under the right circumstances.

I share my finances to inspire others to reach for freedom earlier. I hope to demonstrate:

  • Income can be generated in multiple ways. The regular 9-5 job is not the only way to make money and is also the best way to be a slave to the man.
  • Lowering expenses is really the path towards financial freedom. The lower your expenses, the more you can save. Also, with lower expenses, it takes fewer savings to live on.
  • Side Income can allow you to be free from the man sooner than just saving.
  • It is possible to have low expenses.
  • Becoming an expat is a great way to financial freedom
  • To keep me accountable.

Tracking Your Money

Keeping track of your money is the number one way to reach financial independence. We track all of our income and expenses and then analyze it all at the end of the month for you.

Using Personal Capital is the best way to aggregate all of your accounts into one nice easy view. With your accounts spread across so many different platforms, it is hard to get a whole picture of your finances. Personal Capital gives you a view of where you are, if you spent too much, saved too little, or went into debt. Keeping track of your Net Worth on Personal Capital is super easy.

The best part of Personal Capital’s service is that it is free! It fits in perfectly with our frugal sense and allows us to track and reach financial independence faster. Check out their retirement planner to estimate how far away you are from retirement. It is one of the best I have seen for those of us pursuing FIRE.

If you haven’t started tracking your finances, it is not too late to start. Give Personal Capital a try and you will soon be on your way to being a personal finance guru.

Income

IncomeAmount
Company Match$570
Expat Income$1,266
Interest Income$5
Dividend Income$56
Other Income$102
Salary (Mr. Atypical)$6,467
Salary (Mrs. Atypical)$58
Total$8,524

April was just another normal month for us in the Atypical household. We had our regular salary and our wonderful, but regular expat income. This expat income is a 20% location premium or hazard pay in expat vernacular. It is additional income for us that is grossed up by the company, so we do not have to pay taxes on it.

My company has a fairly generous 401k match of 9%, as long as we contribute 6% to the 401k. This goal is very easy for us to achieve, as we contribute 50% of our income to the 401k. There is one caveat to my 401k contributions, though. They are only calculated on salary, expat income is not included, so 50% of $6,466 goes to the 401k each month to prepare us for financial independence. The 401k matching contribution is free money and we make nearly $6,000 per year from it.

Expenses

ExpensesAmount
Business$143
Entertainment$17
Fees$6
Food$220
Home$325
Insurance$74
Medical Expenses$71
Shopping$55
Taxes$1,065
Travel$743
Total$2,719

Our April expenses were expected and slightly under budget! We had our lowest monthly shopping budget to date at only $54 for the entire month.

My parents were in town for the first 2 weeks of April, which means more dining out and exploring. We tried to show them a good time and that involves traveling. We took a week long trip to Gansu province where we got to see numerous Danxia formations and got the must do in China done, visiting the Great Wall. Introducing my parents to the local food is enjoyable, but certainly more expensive than dining at home. However, this month we were able to reign in the food expenditures because we were eating local Chinese. Having my parents here for a few weeks gives us a feel for what the cost may be to live when we have kids in the future.

As part of our planned expenditures from the Chinese bonus we received in January, we treated my parents to roundtrip flights to Gansu. Both of their birthdays are in April, and we are so appreciative of them coming to visit, we felt that covering the flight was a great idea.

Our Gansu trip spread from March 28 – April 4, so is split over 2 months again. The portion spent in April was $743. This amount is lower than the March portion because it includes my parent’s reimbursement for half of travel expenses. Because my parents do not have a free way to get RMB to spend, we are covering all costs and they reimbursed us at the end of their trip via PayPal. To read more about our trip and how we did financially check out our post here.

April 2017 saw my lowest monthly shopping expenditure ever! We spent only $55 which included a new chain for my bike and a new skillet. Both of these were replacements for broken parts at home. Our low expenditures for April prove that it is possible to not buy stuff. After 5 years of buy, buy, buy, you can rid yourself of the habit and only buy the things you need.

Our insurance for the month is on an accrual basis because we paid for the year entirely in December. We dropped our company sponsored health insurance that cost us $250 per month and the company $750 per month in favor of a local insurance company that was ~5300 RMB or $890. This covers us for all medical expenses in Greater China and also qualifies us to use the supercharged investment vehicle, the HSA. My parents tried out acupuncture while they were here, but didn’t use all of their sessions, so we paid for 3 future acupuncture sessions. Acupuncture cured Mrs. Atypical’s back problems, so we are believers.

Our grocery and dining came down to normal in April. In March we spent, $427 and in April we spent $220. Our dining budget is always pretty small because we don’t eat out very often and when we do, our favorite restaurant cost $5 for the 2 of us. We get 兰州拉面 pulled noodles from a noodle shop within walking distance of our apartment.

The HSA Experiment

Our HSA, currently residing at HSA Bank, incurs a fee of $2.50 per month for a balance under $5,000. We will incur this fee and an additional $3 per month on that account, so we can keep all of our HSA money invested at TD Ameritrade and buy VTI, the best possible investment vehicle. VTI is the ETF equivalent of my favorite mutual fund VTSAX, Vanguard Total US Stock Market Admiral Shares.

After 2 months on the TD Ameritrade platform, I have figured out how to purchase my one ETF without issue. I was able to contribute an additional $1,750 into the HSA bringing our total investment to the maximum $6,750 for 2017.

The investments made into the HSA will save us a good amount of tax for 2017. At the 25% tax bracket, if assumed the HSA contributions are taken off the top, it is $1,688 in tax savings. I will be in the 15% tax bracket after all of our savings so, even there our tax savings are $1,013. These savings help to accelerate our path to financial freedom.

Taxes

Everybody hates taxes. They eat away at our income and we never even get a chance to see it. Taxes were 39% of our expenses for March totaling $1,065.

There are 2 certainties in life, death and taxes. ~Benjamin Franklin

After doing a review of my tax situation, I approached my tax preparation company about reducing my estimated taxes for 2017 and the future. I showed what I would save into pre-tax investment vehicles:

  • $18,000 to the 401k
  • $5,500 Mr. Atypical Traditional IRA
  • $5,500 Mrs. Atypical Traditional IRA
  • $6,750 to the family HSA
  • Total Value of $35,750

This is able to reduce my taxable income significantly, and when combined with personal and standard deductions on the 1040, it brings our taxable income very low. The purpose of reducing our tax withholding is because we know best how to take care of our money. The government obviously does not know what is best for me. We can put our money to work as soon as possible by investing in VTSAX and VTI, without waiting for a tax refund at the end of the year. This can gain us upwards of 12 months of growth (or decline…). It also allows us to raise our contributions throughout the year to achieve a healthy total portfolio to pursue freedom sooner.

I would never use a tax preparation company right now if it was not provided by the company. Taxes are not nearly as complicated as they are made out to be. Due to the tax equalization policy that my company implements for us, we have to have a professional tax preparation firm handle our taxes.

April saw the completion of our taxes, albeit after the normal April 15th deadline. Our theoretical tax liability for 2016 was $15,565 and we had paid $15,378 meaning we actually owed taxes on the return for the first time ever. This is a major bonus because the government did not get a free loan from us.

The way our tax return actually worked is a lot more complicated because we got over $7,000 in tax return that was then remitted with the additional $187 to the company.

Since we had the huge return in the bank account for a little while, I took the chance to max out my Traditional IRA for the year with a contribution of $5,500. With that final contribution, I have maxed out all pre-tax savings accounts by the end of April besides the 401k. Now to see how much more we can save on the year.

Blogging Update

April saw a lot of changes come to this blog and its secret sister travel blog that we also run. All of these changes were behind the scenes, so hopefully, there wasn’t much to notice on the actual site.

Blog Speed

We got feedback that our site was slow to load in the US. We always assumed that it was super slow to load because we live in China where internet service sucks and the server is in the US. Using a VPN to bypass the “Great Firewall” slows down traffic because of the encryption to get out of China.  Not using a VPN means we are a long long ways away from the server. Because of those reasons, I thought the server was probably fine.

So with concrete feedback that our site was slow, I delved into Google and did my research on how to speed up a site. I came back with a huge list of things to go, not the least of which was to switch to a VPS, virtual private server.

We were hosted at Bluehost on their shared hosting plan. I attributed a good amount of the slowness to the way shared hosting works, so we decided to upgrade. I enjoy being able to tinker with settings and optimize everything myself, so it made sense to build our own server. With Bluehost, the VPS was still pretty well managed for you, so I went with Digital Ocean, where I created a new Droplet, installed Ubuntu 16.04 and used EasyEngine to install WordPress.

EasyEngine made the installation very easy and straightforward. To go along with the standard WordPress install, behind the scenes there is:

  • Nginx webserver
  • MariaDB (a better updated version of MySQL)
  • php7 (the current latest and greatest)
  • Redis Server (an object cache)
  • fast-cgi caching (Nginx functionality)
  • Let’s Encrypt (free open-source software that issues free SSL certificates)

You will notice 2 server side caching programs in the list. These work together to cache and speed up our websites significantly. When I started the load time for our homepages were on the order of 10s and now they are down to 1-2 seconds depending on location. The next step in the coming month is to setup a CDN to deliver the content locally. The biggest benefit of the CDN hopefully will be a faster experience for our China users and ourselves during editing.

The hardest part of the migration effort was moving the media/uploads folder over to the new site. Because I am in China I could not get rsync to work between them without timing out. Due to this issue, I bought WP Offload S3 by Delicious Brains and now have all of our media hosted by Amazon Web Services. The WP Offload S3 plugin allows us to push all of our media to Amazon and then bring it back locally once installed on the new server. This service will also integrate very well with the CDN from Amazon, Cloudfront. Both of these services are free for the first 12 months, so we are certainly starting here!

As part of the migration, I also broke our multisite up and made individual installs of our 2 websites. This makes individual management of them easier because they have different target uses.

Traffic Growth

Our next major goal is to actually get people to read our content. It is kind of demoralizing starting out when you write a bunch of content, but nobody actually reads it. This month saw several concrete steps towards increasing our traffic.

First, I signed up for the Billionaire Blog Club. Paul has tons of free content to share with all of us about how to start a blog and the steps it takes to create a successful one. What drew me to his courses was their similarity to Elite Blog Academy while still being reasonably priced. We paid only $128 for a lifetime membership. His claim to fame is being able to start successful blog after successful blog instead of just teaching how he did it once.

Second, I started our Pinterest account and got it rolling with BoardBooster. BoardBooster allows me to auto-pin various pins on my boards and really get it working automatically for $0.01 per pin. I paid $10 to get 1,000 pins/month. Following Paul’s tutorials on Pinterest, I was able to optimize my SEO on my boards and start getting them full of awesome content. I currently have gotten on 4 group boards and feel like I am going to start experiencing growth on Atypical Life soon.

Check out and follow the Atypical Life Pinterest account here.

Traffic growth hasn’t really started too much yet, but after having prepared, I am confident it will begin soon.

Homepage

The homepage got a redesign in April. The new design, I think, looks much more professional than just the plain-Jane blog post list originally. Thanks to Thrive Themes and their email course on building a better homepage for the inspiration. I hope you all like it. I have plans to play with the design more in the future, but for now, all changes will be done on my development server at home.

Savings

In total, we made $5,803 in April and were able to save the majority of that into investment funds. It was a very successful month financially, but that doesn’t matter if we did not enjoy ourselves. We should not kill ourselves to reach financial independence. You should enjoy life all the time, knowing in the future it can be even better.

“Love the life you have, while you create the life of your dreams.” ~Hal Elrod

My parents came to China to visit and we enjoyed a wonderful trip to Gansu province to experience China. It is nice to know you are loved and that people will travel half way around the world to come and visit.

Soon we hope to have side income from our blogs to add to our monthly income report. 2 years from now, the plan is to transition from side-income to only income and be free.

How was your April? Are you heading towards financial independence as well? Let me know in the comments below.

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Atypical Life April 2017 income report. We made $5,803 in profit this month. Blogging is coming along as we continue to invest in it to bring our dreams of freedom to fruition.

How to Slash Your Taxes: Tax Liability Estimation

With tax day fast approaching, most of us are in crunch mode to get our taxes submitted by the deadline. It is now crunch time to finish before time runs out and penalties are assessed. Despite the desire to just finish our taxes, we should all take a step back and think about tax estimation.

Tax liability estimation is a very useful skill to have. Put to good use, it can slash your taxes and bring your freedom date closer. It allows you to leverage your knowledge of tax liability with your employer to lower your tax withholding from your paycheck and have a higher take-home pay each month.

Because estimating your taxes allows you to lower your tax withholding and not have a tax refund at the end of the year, you are able to put your money to work sooner gaining precious days and months on your freedom date.

As I worked with my tax preparation provider (paid for by work), I prepared a tax estimation spreadsheet. There are numerous calculators out there for estimating taxes, but none are as powerful and customizable as the simple spreadsheet. I developed it using the infamous Form 1040. Taxes always have a mystique of being complicated and impossible to do without help, but through my creation of this tool, I learned that it is not nearly as complicated as we are led to believe.

I went through the 1040 line-by-line and brought all applicable items over to the spreadsheet to be able to calculate my actual tax liability. Because I have the expat package now, this was a huge tool for me. I have $15,000+ per year that is un-taxed from my perspective because of gross-up taxes paid by the company. My tax preparers are doing my taxes based on not saving any money to tax-advantaged accounts and after I was able to estimate my tax liability for the next year, I was able to get them to lower my taxes over $300 per month. That is $3,600 for the year that I can invest up to a year earlier and get compound growth on.

Free TAX ESTIMATOR

If you are interested in seeing my tax estimation spreadsheet for yourself and playing with the numbers to optimize your situation, sign up below. Be prepared for extreme savings!

The 1040

The 1040 is broken up into sections to make it easier to understand. The sections are:

  • Filing Status (single, married filing joint, married filing separate, head of household, qualifying widow)
  • Exemptions (Used for the standard exemption calculation)
  • Income (All your various income streams are accounted here)
  • Adjusted Gross Income (allowed deductions to your taxable income)
  • Tax and Credits
  • Other Taxes (additional special taxes e.g. self-employment tax)
  • Payments (how much you paid through the year)
  • Refund (if overpaid on taxes throughout the year)
  • Amount You Owe (if underpaid on tax throughout the year)

There are a total of 79 line items to fill out on the 1040, but for most people, the majority of the items will be not applicable and the form quickly becomes very easy to fill out.

There are numerous software tools to help you fill out your taxes, but the tax forms are not complicated and can be filled out personally. Doing this will give you a more intimate knowledge of taxes and help you to slash through the waste.

How to Estimate Your Taxes

Everybody should track their income and expenses. Because you track your income and expenses, it is very easy estimate your tax liability for the year.

Income

First, you need to be able to project your income. This includes not only your salary, but dividends in your taxable investment accounts, business income, taxable refunds, capital gains from investment sales, taxable retirement income, rental income, farm income, unemployment compensation, and other miscellaneous income. Basically if you make money in any way, Uncle Sam wants a part of it.

From this list of taxable income, you should take notice of the dividends, capital gains, and retirement income. These are your personal levers to reduce taxes from your income. These may not seem like income during the year, but Uncle Sam sees it that way.

Adjusted Gross Income (AGI)

Second, you will estimate your deductions for the year. Your AGI is your income after allowed adjustments to income before the personal and standard deductions. AGI gives you an overview of your income that wasn't saved into tax-advantaged accounts or spent on tax-advantaged goods. Your main adjustments are:

  • Educator expenses
  • Health Savings Account (HSA) contributions
  • One half of Self-Employment Tax
  • Pre-tax retirement plan contributions (Traditional IRA, SEP, SIMPLE, Solo 401k, 401k)
  • Self-employed health insurance deduction
  • Student loan interest deduction
  • Tuition and fees to qualifying schools

This list is not comprehensive, but represents the most common deductions taken on your taxes. Normally the 401k deduction is accounted for on your W-2 and does not show up as income, however, when estimating your taxes, you should include it as a line item under AGI.

Tax and Credits

Tax and Credits is home to your personal and standard or itemized deductions. After subtracting these from your AGI, you get your taxable income. From your taxable income, you can determine which tax bracket you fit in and determine your taxes.

The US uses a progressive income tax. In other words, being in the 25% tax bracket does not mean you pay 25% of your income to Uncle Sam, it means you pay 25% of the amount above the 15% tax bracket and 15% of the amount between 10 and 15% brackets, and 10% of the amount below the 10% bracket.

tax ~= taxable income * 25%
tax = 10% * 10% tax bracket + 15% * (15% - 10% tax brackets) + 25% * (25% - 15% tax brackets) + ...

You pay less than your tax bracket sounds like.

You have your tax liability calculated and now it is time to take your tax credits. Credits are much more powerful than deductions because they directly effect the tax liability. They are directly subtracted from the tax liability. Credits available include:

  • Foreign tax credit
  • Dependent care credit
  • Education credit
  • Retirement savings contributions credit
  • Child tax credit
  • Residential energy credits
  • Other credits


Bringing it all together

Now we have enough information to estimate our tax liability. When we know our salary, contributions to tax-advantaged accounts, deductions, and credits, we can accurately estimate our tax liability for the year. Even if you get a bonus or some other windfall, your estimation is accurate and the bonus is just added in on top of what you already predicted.

The true power of the estimation is the chance for optimization. With a plan for the year and a model you can manipulate, you can see how different scenarios can effect your bottom line. The goal here is to minimize your tax liability and the only way to do that is to know how it works. By playing with the numbers you can watch the tax liability vary and determine the best way to plan out your taxes.

Spending your time on optimizing your taxes and determining how to qualify for the various tax credits will give you a huge return on investment. Not only can you minimize your tax liability today and get your money invested sooner (no tax refund), but you can also have more money overall by minimizing and planning your tax approach.

Free TAX ESTIMATOR

If you are interested in seeing my tax estimation spreadsheet for yourself and playing with the numbers to optimize your situation, sign up below. Be prepared for extreme savings!

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tax estimation