Tax season is the perfect time of year to figure out how much money you spend. Okay, so maybe this is not exactly a budget per se. But this quick and dirty budget does tell you how much you spend, which is what most people want to know when they’re approaching retirement. How does it work?
Here are the steps:
- Grab your 1040
- Scroll down to Total Income on line 6 now, line 22 previous returns.*
- Add that number to your calculator.
- Scroll down to Total Tax on line 15, line 63 on previous returns.
- Subtract that number.
- Find your State Tax return and/or Local return. In Michigan, that’s line 24 of MI 1040.
- Subtract the tax for both those returns.
- Boom! That’s how much you spend.
Budgets don’t have to be complicated. You really just want to know how much you are spending. That’s it.
There are a couple of caveats:
- * You could subtract dividends and interest and capital gains from your total income if you don’t spend those. I usually do.
- If you’re saving pre-tax money in an HSA or retirement plan at work and you want to show that in a detailed budget, you have to add that to your total income.
Knowing how much you spend doesn’t have to be complicated. Once you take your total income and back out taxes, that’s your after-tax income. If your debt is increasing, you’re spending more than you make. The key is to live within that after-tax income amount .
To lower your expenses, I suggest you start with the two biggest budget culprits: your home and auto. For help with your home, check out Mortgage Habits of Millionaires. For help with autos check out Avoiding Blackhole Car Habits. Further reading includes: