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Two years after quitting my job: 2013 in review
- ZanderEarth32 13y agoI subscribe to Nathan's emails (some of the only emails I read regularly, they're that good and useful btw)and was really happy to read he had such a successful year. But I was also saddened to see that he admitted to not having as much money in his bank accounts as he had hoped or planned. He mentions that taxes were huge, but being employed rather than self-employed myself, is he paying that much more in taxes than he would be if was just a salaried employee at a regular company?
- nugget 13y agoHe admits to lifestyle creep as his income increased. It's not what you make, it's what you spend. That's the best personal finance advice I ever received, but very unintuitive for most people unfortunately.
- aaronblohowiak 13y ago> It's not what you make, it's what you spend. I've heard this as "It's not what you make, it's what you save" which puts the emphasis on building wealth.
- nathanbarry 13y agoYep, it's pretty much just spending more on lifestyle. I grew up relatively poor (for my area) so I always thought I'd live on just a little bit of money, even if I had far more. That didn't really happen like I thought. But I have zero debt, no financial obligations, and $50k in the bank, so I'm doing fine. Just not what I would have expected after a year like 2013.
- nbouscal 13y agoOne of the best ways to prevent your spending from getting away from you is to set up automatic saving. Most banks and credit unions will let you set up automatic monthly transactions to put some amount into a savings account without you having to think about it. Once it's set up, the "out of sight out of mind" principle kicks in for your benefit. It's also a good idea to do the same thing for investment. Especially with the amount of taxes you're paying, being sure to take advantage of government tax-advantaged retirement plans is important. You make too much now to do a Roth IRA, but you can still do a traditional IRA. I'd recommend using Vanguard, investing in index funds, and again setting up automatic investments so that you don't have to think about it. (This is the first time I've read your blog and I know nothing about you, so maybe I'm saying things you already know, but I thought it couldn't hurt to post anyway. As you mention, you're in great shape either way.)
- deleted 13y ago[deleted]
- skittles 13y agoThe self employed pay 15.3% of gross income to FICA and Medicare taxes. This amount cannot be avoided (no tax breaks). Employees pay roughly half this percentage. It's also very easy for the newly self employed to see the money rolling in and spend it. One has to be disciplined enough to set aside enough for taxes in a separate account.
- stirno 13y agoThis isn't necessarily true. Its fairly common to have an S-Corp (or LLC filing as S-Corp) dodge a significant chunk of the self-employment tax by paying a lower salary and then shareholder distributions for the rest. Balance is important here as the IRS watches these situations closely, but any decent accountant should help someone down this path.
- skittles 13y agoAfter looking into this, it looks like the IRS will ding you if you pay yourself less than what it would take to hire someone to do the same job.
- stirno 13y agoThe IRS will, effectively, value your job in the event of an audit and determine whether you paid yourself reasonably compared to your market for your skills, experience, etc. I had prepared an example that showed you could actually pay less in FICA, while still being reasonable in the eyes of the IRS. Maybe not ideal to post it here though.
- a8da6b0c91d 13y agoHow do those CEOs with $1 salaries get the all clear? Their compensation is all capital gains, yeah?
- Romoku 13y agoLong term capital gains is less than the alternative minimum tax. Executive compensation probably consists of a mixture between stock options and company paid expenses (airfare, company car, vacations, travel, nice office equipment, etc).
- dkokelley 13y ago> "...is he paying that much more in taxes than he would be if was just a salaried employee at a regular company?" Not quite. Some taxes are paid by the employer, and some taxes are withdrawn directly from your paycheck. When you are self-employed, you see exactly how Uncle Sam gets both sides of the action.
- wmeredith 13y agoYeah, this was quite the shocker for me once I started making serious side money. Personal income taxes are about 50% in the US. (Which, by the way, would be totally fine with me if it funded infrastructure and social safety nets. Unfortunately, the vast majority of that goes to wars against nebulous foes, i.e. drugs, terrorism, etc...)
- EdwardDiego 13y ago> Personal income taxes are about 50% in the US. I'm not American, but every time I look at taxation levels, I come out with a number significantly smaller than that. I presume that America uses progressive taxation, so at what income level does personal income + payroll tax equate to 50% of gross?
- stirno 13y agoYou'd need to combine a very very high income level (well above $450k/yr with lots of money getting taxed in the highest federal nominal bracket), live in a state with high income tax and have a bad accountant. In short, if anyone is paying that much in taxes they are very much doing it wrong... and I kind of doubt people are.
- derekp7 13y agoAccording to the 1040 tax tables, 100,000 gets taxed at 21,454, so that is 21.4%. Add on 15% FICA (if self employed), 5% state tax, and you are up to 41.4%. Now if you own a house that the county assessor says is worth $200K, you are talking about 8K a year in property tax (this will vary by area, but is true for where I'm at in the midwest). That leaves $55,546 out of the 100,000 to spend. Ok, now try to spend it -- you will pay 8% in sales taxes, for another $4443.68. So all you have left is a shade over 51k, out of that initial 100K that you earned. So not quite 50% taxation, but close enough (actually, some sales taxes are higher, such as gasoline, etc).
- jpatokal 13y agoTax-wise, the US is among the worst places to be self-employed. Per this little calculation of mine, an IT entrepreneur earning $100k would keep >99% in Singapore, but <57% in SF. (Massive caveats apply and are enumerated in detail in the article.) http://gyrovague.com/2013/10/30/half-the-donut-why-an-entrepreneur-earning-100k-gets-to-keep-over-99k-in-singapore-but-under-57k-in-san-francisco/ http://gyrovague.com/2013/10/30/half-the-donut-why-an-entrep...
- gamblor956 13y agoI was going to rebut the linked article, but it has so many basic factual errors that it's easier to say that the article is completely useless. Suffice to say, when you cherry pick the financial considerations included in your "model", it's easy to reach whatever conclusion you want.
- jpatokal 13y agoAs the author of said article, I'd be keen to hear about these "factual errors". Yes, the calculation makes a lot of assumptions, many of them generous, but these are clearly laid out upfront. And while I agree that you would probably not want to use the exact model laid out ($2k salary plus company profit as dividends) in each country covered, you've got to establish some sort of baseline to be able to sensibly compare them! I have considered doing a v2 where the starting point would be "$100k sitting in a company account" and the goal would "as much cash as possible in my personal account", but I'm not sure this would be particularly useful or any more realistic. For example, in Singapore the optimal strategy would be to draw zero salary and take out everything as tax-free dividends, but most entrepreneurs can't afford to wait a year to get any money at all.
- gamblor956 13y agoFor starters, at least half of your US tax rates are either wrong or wrongly applied. Beyond that, you'd have to pay me to spend the time to detail all of the inaccuracies. My hourly rate starts at $300.
- deleted 13y ago[deleted]
- dmourati 13y agoMakes me want to write a book! Have to wonder what I know that isn't already out there in published form.
- peacemaker 13y agoThere are an unlimited number of books out there that you haven't published yourself :) Just write about something you know and enjoy the process.
- dmourati 13y agoThanks! I've found a book by Guy Kawasaki called APE that discusses self publishing. http://www.amazon.com/APE-Author-Publisher-Entrepreneur-How-Publish-ebook/dp/B00AGFU5VS http://www.amazon.com/APE-Author-Publisher-Entrepreneur-How-... He references OP's book as an example. I love when things cycle back on themselves like that.
- nicolethenerd 13y agoWhat app is that "Did you write 1000 words today?" a screenshot of?
- fuddle 13y agoIt's the Commit app, also made by Nathan: https://itunes.apple.com/ca/app/commit/id473527073?mt=8 https://itunes.apple.com/ca/app/commit/id473527073?mt=8
- nathanbarry 13y agoYep. I just redid the app for iOS 7. I guess that should have made it into the year in review post.
- zefhous 13y agoI plugged his numbers into a Numbers spreadsheet I use for estimating my taxes including self-employment tax. This should be the maximum that he would owe for 2013, though there is surely more that he can deduct. It accounts for his wife and child, but does not take into account any personal deductions like mortgage interest, donations, or anything else. The state rate is approximately correct for Idaho where he lives though the state uses brackets below $10,000. Just from the amount of deductible self-employment tax he's close to using itemized deductions, but would have to add more personal deductions to get to that point. Business income: $256,725.00 Business expenses: $65,000.00 Self-employment tax amount: $19,233.48 Self-employment tax effective rate: 7.49% Federal tax amount: $34,625.50 Federal tax effective rate: 13.49% State tax amount: $12,463.45 (assuming flat rate of 7.4%) Total tax amount: $66,321.43 Total tax effective rate: 28.38% Here's a screenshot of the sheet I used: http://cl.ly/image/1N3M3U3Z2X2x http://cl.ly/image/1N3M3U3Z2X2x
- chiph 13y agoNathan needs to get a CPA to do his taxes. I finally got one about 2 years ago and had him look at some of my older returns. Turns out I wasn't accounting for rental property income correctly, and he was able to get me several thousand back (plus interest!) from the IRS. Totally worth it.
- WalterBright 13y agoI agree. With the amounts he's dealing with, a CPA is necessary.
- nathanbarry 13y agoI actually haven't done 2013 taxes, just my estimated payments for the year. I was expecting to make a little more, so my estimated payments should be a bit high. I do have a CPA who will do my actual taxes.
- narrator 13y agoAre you living in the U.S? If so, what about health insurance and other benefits you had to provide for yourself? I'd really like to see how it compares to your old job after everything.
- pond_lilly 13y agoboring and atypical outlier. Come back and report in 10 years. Now, let's hear real life stories of 2013 losers, more interesting, educational and realistic.
- nathanbarry 13y agoI'm a little late to this thread, but if anyone has questions (especially ones unrelated to taxes) I'm happy to answer!
- jbigelow76 13y agoWhat kind of content are you providing to the subscribers of the $100/mo. forum? And are you using actual forum software or some other CMS to manage the community?
- nathanbarry 13y agoI'm writing a new course that is a follow-up to Authority. That is being dripped out one chapter per month. I also have case studies of other profitable audiences (my friends I admire). Finally (and currently the biggest part) I have a forum of 20 like-minded people all helping each other out each day. I'm pretty active as well. Just answering questions ranging from landing page feedback, pricing advice, to which audience you should choose.
- bdunn 13y agoChiming in here. Nathan and I both run membership sites that use the same underlying tech stack: a Discourse app that authenticates off a Stripe-aware Rails app that handles memberships and grouping users into cohorts. Unfortunately, just about every forum that could be plugged into one of those "Membership site made easy" Wordpress plugins seemingly got lost in the 90s.
- joelhooks 13y agoI'm a member, and I didn't even know there was going to be content, outside of the conversation when I signed up. The value I get out of it is a place I can have candid conversations about the business I am building and get actionable feedback from Nathan (and the other smart peeps). Actionable stuff that will definitely increase revenue more than the cost of admission. It's tough to do this stuff in a vacuum. I've got a hipchat room I hang out in regularly that has the same vibe, and there is value in hanging out with smart & motivated people working towards similar goals.
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- GrinningFool 13y agoOT: Tried to sign up for his newsletter. On firefox, a whole lot of Nothing Happened - no error, no nothing. Even disabled my anti-tracker plugin of the day (do not track me) to make sure it wasn't interfering. On Chrome it worked, but didn't really give me visual indicator that it did - if I didn't have my phone nearby, I wouldn't have known that I got a confirmation email. Not such a good first impression of software that's supposed to specialize in email conversion :(
- nrs26 13y agoI had the same problem with Chrome. A confirmation screen would be cool. The newsletter and sample chapter are both great though, definitely worth checking out.
- ufukbay 13y agoIt sadly didn't work at all for me. Getting the following error on Chrome (Version 31.0.1650.63 m): XMLHttpRequest cannot load https://app.convertkit.com/landing_pages/4811371/subscribeFromId https://app.convertkit.com/landing_pages/4811371/subscribeFr.... No 'Access-Control-Allow-Origin' header is present on the requested resource. Origin 'http://nathanbarry.com' http://nathanbarry.com' is therefore not allowed access.
- mathattack 13y agoGreat story. Thanks for sharing. While others are focusing on the $s, 2 non-cash things jumped out at me. And then… taxes. Which are brutal. I suspect it's the administrative overhead, rather than the taxes themselves. This can take away a lot of energy and focus. Now that he is getting a bit older (2 years old) it’s been harder to take long flights with him. Kids don't travel well when they're old enough to walk, and too young for iPads. this will get better in a year.
- nathanbarry 13y agoHa, yep. I think this is a phase he will grow out of. I expect travel to resume in a few years.
- mathattack 13y agoDon't worry. Kids get more awesome every year.