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How Well Do You Manage Your Biggest Expense?

Updated: Dec 4, 2022

First of all, what will your biggest expense be over a lifetime? It isn't the big ring you bought your fiancé, nor your need for luxury travel. It could be your gambling habit - but that rarely lasts a lifetime, does it? Nope, it's not even your home, assuming you were somewhat responsible when buying it. No matter what your job is, how much you make or how you live - your life's single biggest expense category will be ...

Tax!

For most of us, the marginal rate (percentage of the last dollar of income paid as tax) is likely to be 25-35% of gross income. That's a big chunk. So, how are you doing managing your biggest expense? If you are like most Americans, you probably thought, "eh, so so; not much I can do about it anyway". Well, I disagree with the last part - there is a lot you can do to save on taxes, and legally.


To discuss taxes is to walk a political minefield. So, let's tap-dance around the politics and stick to what we can all agree on. We incur taxes on every conceivable economic activity - earning, buying, selling, owning property, even dying. However, the nation's tax code has also been used to shape social and economic decisions. It is full of ways your personal tax burden can be lowered, or at least deferred.


  • Have you maximized your 401k at work?

  • If you have kids, have you funded their 529 plans?

  • If your income is below $144K ($214K if you are married), have you funded your Roth IRA? Did you know you can have both a 401K AND a Roth IRA?

  • If you have a side hustle, have you considered an SEP IRA?

  • Do you own stocks that are in the red right now that you could use to harvest some tax losses?


I get it - these questions can quickly become overwhelming and confusing. That's especially true when you have to weigh one against the other. Do you fund your 401k first, or your kids' college funds? Do you pay off your student loan, or save into your Roth? Which is why most Americans don't fully use their tax code to their advantage. I started this practice with the insight that THIS was the single biggest source of value an advisor can bring to clients - weeding through the tax code and enabling them to reduce taxes over their lifetimes. Not picking stocks or timing the market. Nothing else offers measurable, guaranteed savings. A small dose of planning can help reduce your biggest expense, and December, while not ideal, isn't too late to make changes for 2022.

PS: I am working on blog/video explainers on several tax strategies and investment vehicles. Drop me an email if you have one in particular you'd like me to cover.


This material is intended to be of general interest, not personal financial advice or a recommendation to buy, sell or hold any security or adopt a particular investment strategy. Your circumstances and attitudes toward risk matter, and only an advisor working with you can give you specific advice. All investments carry the risk of loss, including loss of principal. Stock and bond prices can be volatile. Past performance is not an indicator or guarantee of future results. Diversification does not guarantee profit or protect against risk of loss. This material may not be reproduced, distributed or published without prior written permission from Sanjay Pamurthy/Artham Advisors LLC. Data from third party sources quoted here has not independently verified, validated or audited. Although information has been obtained from sources that Artham believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. Artham accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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