There’s no point in hating or fearing taxes—they are a fact of life. It’s far smarter, says 25-year-old Matthew Bastien, to study and keep the upper hand in the tax game. While others frequent online chat rooms, Bastien surfs MSN and Yahoo Finance.
Before the systems engineer dashes off to work in the morning, he makes sure he catches CNBC, and if he has down time at work, he sometimes fiddles with his tax-savings vehicles. Bastien has a Roth IRA and a 401(k), and because he has operated his own IT consulting business since 2004, he is entitled to a SEP-IRA, which he opened in late 2004.
“One of the reasons I started my company is for the tax shelter,” says Bastien, who predicts his consulting business could make $30,000 this year. The New York resident envisions the day he’ll earn more than the $70,000 he pulls in at his full-time job.
Bastien’s attention to saving money through savvy tax management shows his strong embrace of DOFE principle No. 4: to engage in sound budget, credit, and tax management practices.
Although he can’t take the home-office deduction because he owns a one-bedroom co-op, he takes advantage of deductions for business expenses such as his cell phone, software and other technology equipment, travel, and his car. He further reduces his taxes by participating in a Flexible Spending Account at work. Bastien estimates that his various tax strategies save him about $5,000 a year.
As particular as he is about taxes, he is equally committed to budgeting. “I have a monthly budget that I don’t exceed,” he says adamantly. He uses an Excel spreadsheet to track his spending on food, clothing, the mortgage, and other monthly bills. “When you pay attention to your bills, you can find all kinds of ways to save money,” he says.
Although he may be an icon of discipline now, that wasn’t always the case. After overextending his credit, Bastien, a part-time student at Baruch College, made attempts to get back on track financially. “Doing a budget was the first thing I did to get myself on track.”
During his five year “free-flowing period” as he calls it, he ran up $22,000 in credit card debt, fulfilling his dream to travel. He’s visited Brazil, Europe, several places in the Caribbean, and more.
Bastien no longer uses his credit card unless he can pay off the full amount immediately. He still owes about $16,000, which he vows to pay off by the end of 2006. Using a particularly painful remedy, he plans to use more of his salary in addition to some of the revenues from his business to pay off his debt. He can do this because he’s single, has no children, and doesn’t have much other debt.
For the time being, Bastien is just happy to have learned from his mistakes. “I’m particular about paying my bills on time, and I’m mindful that I have a good credit score, as I want to buy a bigger house soon,” he says. “Having great credit will