I had a workshop recently where five couples came to learn about how they could decrease their debt.
I always start debt relief workshops by asking people what their biggest expense is.
Most people get that question wrong.
Usually the first thing people will say is "My Mortgage" or "My rent".
That's pretty standard.
Most people pay between twenty and thirty percent of their income on their mortgage or rent.
It's money that is pretty much gone before they ever see it.
When I tell people that is wrong they tend to look at me blankly, think about it for a moment and then say "car payments?".
Car payments is a pretty good guess too.
People pay much more than they think on cars.
You buy a new car and you are looking at around thirty thousand dollars.
That's a pretty big outlay in itself, but then you need to add petrol, oil, insurance, maintenance and all the other bits and pieces that come up with your car - and that's assuming it never breaks down.
I shake my head.
It's not cars.
Actually the one guy who said cars first was the only guy who has ever been right when we figured it out.
he was unemployed and had $250/week of car payments to make.
The number one expense of almost everyone is tax.
And we don't even think about it because the money we lose to tax is gone before we ever see it.
But think about this, if you can remove tax from the equation you can actually increase your income by roughly a third.
So how can you remove your biggest expense? Well article 401(k) of the internal revenue code holds a nice little surprise that allows you to do basically that.
If your company has a 401(k) scheme in place you can put your money into savings before tax instead of after tax.
The money that goes into the 401(k) is only taxed when you withdraw it, but only the amount you put in is taxed!What this means is the interest on the amount you put in is essentially tax free.
As a long term way of accumulating wealth this is very effective and should definitely be considered as part of your tax relief plan.