The W4 experiment goes something like this. At the beginning of the year, I adjusted my withholdings to a filing status of Single with 0 exemptions. This will withhold the maximum amount of taxes from my gross income within my tax bracket. The reason I did this was because I liked the idea of getting a fat refund from the government come tax time. The huge negative impact of doing this is that the money withheld could be going towards our debt snowball. And after receiving my first paycheck of the year, I was like WOAH! this is unacceptable. It's unbelievable how much taxes get taken out for single working professionals.
Anyway, to continue with my experiment, I adjusted my withholdings to Married with 2 exemptions. After waiting two weeks for my next paycheck, I compared both paychecks. Adjusting my withholdings allowed me to keep approximately $600.00 more in my paycheck. And that $600.00 can go towards our debt snowball which will give us the opportunity to become debt-free (minus the mortgage) from March 2016 to September 2015. Additionally, I can probably update my wife's withholdings from Married with 1 exemption to Married with 2 exemptions to squeeze out an extra few hundred bucks per month that can accelerate our debt snowball or to give us an extra cushion with our miscellaneous fund.
If all goes according to plan, that means we can be completely debt-free by August 2021, 7 years and 6 months from today. Possibly sooner once our children graduate daycare and enter public school and the saved daycare expense can go towards our debt snowball. But there's no point in thinking that far down the line. Like I said in my "Time Is Going By Really Really Slow" post, I'm giving myself a more realistic goal of focusing on the student loan and car loan. It's all about taking it one day at a time and making sure to enjoy every single day on our journey to zero debt.
I love that you're playing around with those withholding numbers, haha... I used to do the same when I had a 9-5 to see how it would affect stuff :) makes finances interesting!
ReplyDeleteI was surprised at the difference in my paycheck. Most of that increase is going directly towards our debt snowball!
DeleteI let uncle Sam keep it...I know I will spend it.
ReplyDeleteHS
Yes, that used to be us. But now that we have a goal, we want to keep as much as we can so we can pay down debt. Once we're debt-free, we might adjust it back for a bigger refund so it can be a nice treat ;-)
DeleteWe try and keep as much as possible in our pockets too, but only because of our high DTI ratio right now. It'll be nice when we can do that so we can put the extra money into savings or investments. :-)
ReplyDeleteSo my CPA suggested that I adjust my federal exemptions to 3 and state to 5. This will guarantee us that we keep most in my paycheck without having to owe Uncle Sam.
ReplyDeleteI wonder how much this will bump up my next paycheck to.