What should a single guy do with a budget surplus?
I am not a financial or investment advisor. The extent of my training is “seat of the pants” or through reading on my own. However, over the past five years, I have probably quadrupled my financial knowledge. Yet there are still many times when people who know about my hobby (blogging about personal finance) ask me finance questions for which I do not really have an answer.
I have a mentoring relationship with a man in his early twenties. The majority of our discussions center around spiritual issues or just life in general, but last week, he asked me to help him set up a budget. Obviously this is an area in which I am quite comfortable so I prepared an Excel spreadsheet that mirrored our own family budget and saved it to my computer. The spreadsheet I have has been revised extensively, I like tinkering with the formulas and links and all the rest. There are a lot of different programs and software for budgeting on the market – I have tried a few, but always seem to gravitate back to good old Excel.
“Mark” and I sat down to discuss his financial picture. We talked through his financial priorities and plugged his numbers into my spreadsheet to see what the big picture looked like.
Here is a brief summary of Mark’s situation: He is 24 or 25 years old, no spouse or dependents. He has little debt and because he is attending college under the GI bill, his expenses are lower than most. While he is in school the military takes care of his housing and medical care. He was active duty prior to last year and plans to go back into the service as an officer when he graduates. A couple of weeks ago, Mark decided that attending school was not quite enough “action” for him, so he took on a full-time job that worked with his school schedule. Now it looks like his gross income might be over $100,000 this year. His new job also provides him with a mobile phone and a company car.
After working through his budget, there were a couple of numbers that jumped out at me. First, we estimated Mark’s federal income tax liability at over $30,000 for the year. Secondly, after budgeting for all of his living expenses, paying off all of his debt, and maximizing his retirement contributions, Mark is likely to have $35,000 in surplus cash. That is a lot of cabbage for a young man . . .
I have two questions for which I would like to hear your ideas:
1. What can Mark do to reduce his tax liability?
2. What is the wisest thing that he could do with the remaining $35,000?
Of course, I recommended that Mark seek the counsel of a a trained financial professional as soon as possible, but I gave him a few of my own thoughts about what to do, but I certainly was not all that confident. My financial experiences lies mainly in the area of solving deficit problems. I have never had the “problem” of a budget surplus.
What do you think?
Article by Stew
Photo by pizzodisevo