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3 perks to consider to reduce your car costs

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Of all the prices you pay during your lifetime, the price of a car can easily be among the highest. Therefore, when the time does come to purchase a new vehicle, you should tread carefully at every stage of the browsing and shopping process to see where savings can be made. You could be surprised by just how much is trimmed off the total price provided that you are seriously determined. Below, we detail three perks that you could find especially cost-effective.

A company car

Initially, receiving a car from your employer can seem a wonderful perk. You get a vehicle that you don’t need to make any initial financial outlay for and, in the United Kingdom, there’s even a great tax break for the car user, as Auto Express explains. However, the company car on offer in your case might not be as financially efficient as it first looks – not least for tax reasons.

The UK tax-collecting authority Her Majesty’s Revenue and Customs – or HMRC – will treat that car as a benefit-in-kind and so tax it at a rate they deem accurately reflects the car’s value. HMRC consider a company car part of the user’s earned income, as the employer effectively pays for it in addition to an annual salary. How much company car tax you have to pay will be affected by the vehicle’s carbon dioxide emissions and your annual salary.

Therefore, as Tax Donut notes, you might actually want to turn down a company car if its emissions are high and a higher salary is on offer as an alternative. When you choose that alternative, the extra money could help you to purchase a low-emissions car for use in place of a company car. This brings us nicely onto the subject of how you can help yourself to make a wise choice of eco-friendly vehicle.

An environmentally friendly car

Another good reason to buy a low-emissions car instead of accepting a less planet-friendly company one is that this could appreciably lower how much you have to pay in VED. This is more properly known as Vehicle Excise Duty and must be paid on any car, even if it is a company one.

VED is payable on the vast majority of new cars from day one. However, all zero-emissions vehicles are exempt in the first year, while low-emissions vehicles with a list price of £40,000 or under stay exempt in subsequent years. Still, even those vehicles where the list price exceeds £40,000 require only £310 in VED payment over years two to six.

This compares favourably with the VED necessary to pay for petrol, diesel or alternative fuel vehicles over the same period. Thus, you could easily overlook that low-emissions cars, which come in electric and hybrid forms, can require larger upfront payment. Your favoured model might even come with a government grant; the BMW i3, for example, includes such a grant of £5,000.

An electric car could also hold its value relatively well over the years, making it ideal to sell for a healthy return later down the line. MoneySavingExpert.com has cited Tesla, one of the most successful companies in selling electric cars, as the third most effective brand in helping to preserve its cars’ value. That value was reported to fall by only 33% per year.

A carefully chosen car insurance policy

To use a car on the roads, it is legally necessary that you have car insurance for it. MoneySavingExpert.com advises you to secure that insurance ahead of becoming the car’s legal owner – as, should anything occur to the car, you will be responsible. Even if you take very good care of that vehicle, you can’t entirely rule out an accident like another car driving into the back of yours just after you have driven it out of the dealership.

If your car has insurance, you could benefit from having a good look around when the time comes for you to renew it. Maybe, when you originally bought that car, it already came with insurance. While renewing the existing policy could seem like the most straightforward strategy, it might not necessarily be the kindest on your bank balance. Furthermore, taking account of policies from different insurers does not have to be as time-consuming as you currently expect it to be.

If you live in the UK, one time-efficient tactic is arranging for an independent insurance broker to pore over different policies on your behalf. Your chosen such broker could be Call Wiser. That company, operating at Andover in Hampshire, can consider what over 30 of the leading UK insurance providers are offering as it searches for the most suitable deal for you. An appealing quote could be sent your way in just 10 minutes when you submit an insurance application to Call Wiser.

How Much Money Can You Make Driving For Uber?

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How Much Money Can You Make Driving For Uber? Now that Uber is here, I can't help but think: Between taxes, fees, depreciation, and other driving costs, can you actually make any money driving for Uber?
A couple weeks ago, Iowa City entered the 21st century. The City Council, after much hemming and hawing, decided to approve Uber within city limits. In this booming college town known for some of the hardest partiers in the country, ridesharing services have been sorely missed. College students have needed to pay for expensive cabs, take circuitous buses, or stumble home. We’ve really missed the Uber option.

I’ve been waiting for this moment for years. I’ve been fantasizing about it. I would roll up in my Bentley, glide the window down, and chuck a half-smoked cigarette onto the curb. I’d peer over my Secret Service-style aviators and say, “Someone order an Uber?” Then, the fantasy would evanesce — including the Bentley, the smoking, and the aviators.

Now that Uber is here, I can’t help but think: Between taxes, fees, depreciation, and other driving costs, can you actually make any money driving for Uber?

In many ways, Uber is the perfect side income. It subsidizes the ownership and use of a car, pays for hours otherwise uncovered by other opportunities to make money, and is a fun, social method to make money.

Despite the many positives, Uber isn’t some sort of utopia. Passengers smoke cigarettes, vape, leave trash, and can be altogether rude — and that was just my first four rides. People can miss your phone calls, texts, and app notifications of your arrival, too — or cancel the request after a couple minutes of driving towards them.

This morning I had an extra 40 minutes and decided to “go online.” Within the Uber Partner app, I waited about 45 seconds and was called to pick up someone. That was quick, I thought. About 25 minutes later, after the Uber mafia had taken their cut (25% of every fare), I walked away with $9.17.

The couple I picked up were out-of-towners whose car had broken down in the city. They needed a lift to a dealership for auto repair. Being there to help them seemed important — a win-win for us both.

Searching for the real Uber income statistics

Plenty of news articles have noted Uber drivers’ incomes and attempted to get a net income, but it’s challenging to see how they do their math. I figured I’d do some math right here, and see what I found for both of our sakes.

Let’s estimate $1,000 for 2016 earnings. I haven’t made that much — yet — but intend to keep driving when fares surge due to increased demand. Maybe I’ll get there?

IRS Logo
Ah! The IRS!!!

At Uber, you’re considered an independent contractor. You are your own business in many ways. Many of the company’s risks and costs are displaced onto their drivers. You have to pay for medical and car insurance, and if you get in an accident, it’s on you.

Thus, the $1000 earned is called self-employment income. The IRS considers self-employment income for a couple special taxes: Social Security and Medicare. When Uber pays you — or other drivers — it doesn’t take out any money for income taxes. Thus, you have to give some of the money back to the government. Importantly, these taxes are only owed on earnings over $400.

Calculate your self-employment taxes

Currently, the self-employment tax rate is 15.3%. But like anything the IRS publishes, it’s complicated. Only 92.35% of income is considered taxable. Why? Again, call up the IRS — I’ve got no clue. Here’s what the math looks so far with the taxable income consideration and self-employment tax:

$1,000 total Uber earnings
x.9235 taxable income conversion
_____
$923.5 total taxable income
x.1530 self-employment tax
_____
$141.30 total taxes owed

In review, by calculating this initial taxation, I’m left with $1,000 minus $141.30. After all these calculations I’d be left with $858.70. Here’s where people tend to stop and say, “Hey, I think driving for Uber is worth it!”

Calculate your tax deductions

But wait a moment, okay? These initial calculation fail to account for business expenses and tax deductions. Tax deductions are usually expenses incurred in the process of making additional income. Over the last few weeks, I’ve calculated a few deductions because of the business.

Here are some quick examples of things I’ll be watching out for:

  • Tax deductible portion of self-employment taxes (50% of taxed self-employment income)
  • Mileage deduction ($0.54 per mile driven for business)
  • Parking (e.g., $5 thus far)

Meticulous drivers out there should try to keep track of all mileage driven for Uber. Pay close attention to every mile, as the IRS provides a $0.54 standard tax deduction per mile. What I’ve noticed is about a 40% per dollar to mile calculation on average. In Iowa City, which might differ compared to your local city, I’m out in the boonies for a long drive and then back into the city area for short trips. For the sake of this estimate, I’ll say $1,000 in income equates to 400 miles driven.

Here are my tax deductions:

400 miles driven
x.54 per mile deduction
_____
$216 tax deduction for standard mileage driven
+$70.65 deduction for self-employment tax (50% of taxes)
_____
$286.65 total tax deductions

Importantly, tax deductions are not money put directly in your pocket. They essentially are a method of reducing your tax burden on annual income. For instance, if I made $25,000 in combined income in 2016 — some of it receiving income taxes and others from self-employment — that would put me in the 15% tax bracket. With $286.65 in deductions, the IRS says I made only made $24,713.35 in adjusted gross income.

Now, here’s why I hate calculating taxes by hand…

Without deductions:
$25,000 combined annual income
x.15 tax bracket
_____
$3,750 in taxes

With deductions:
$25,000 combined annual income
-$286.65 total tax deductions
x.15 tax bracket
_____
$3,707 in taxes

Hold on, let me take a breather — this is a lot of math. Phew! Subtract $3,707 from $3,750, and you get $43 from the tax deductions. $43 that the federal government is essentially giving back to you because you drove for Uber.

Calculate your driving costs

You might’ve thought we were done. You might’ve thought, “Okay, now we can add and subtract — bada bing bada boom!”

You’d be wrong.

Before we can calculate a realistic number earned, we need to account for depreciation, registration, maintenance, and other fees associated with operating and owning a car. Driving all those miles, while accounted for in the IRS mileage deduction, still hits your wallet. Simply put, you still incur costs to driving that vehicle all around town.

AAA to the rescue!The best driving statistics come from AAA. Every year they publish their driving cost statistics, while accounting for gasoline, insurance, and other variable rates from year to year.

Based on a small sedan (that’s what I drive), driven about 15,000 miles per year, equates to 43.9 cents per mile in costs. Driving for school, work, or even Uber on the side costs the same amount: 43.9 cents per mile.

Here’s an estimate of driving costs:

$1000 income
x.40 rough estimate of dollars to miles
_____
400 miles driven
x.439 cents per mile
_____
$175.60 total driving cost based on AAA statistics

The final, Uber calculation and results

Starting from $1,000 in earnings, I lost some to self-employment taxes (-$141.30). I was fortunately able to reclaim some money through tax deductions ($43). But before I could make the final judgment, I calculated the driving costs (-$175.60).

In total, after all is said and done, $1,000 becomes $683.10 in take-home pay. And by “take-home,” I mean no one can touch it at this point. That’s after everything is paid off.

Throughout this article, I’ve made a number of calculations. With more time and statistics, I’d be able to report more accurate estimates. For now, the statistic equals 70% of what you see is what you get.

Every fare, surge, and ride time. Every cool conversation. and every drunk college student — you’ll make about 70 cents on every dollar earned.

I forgot one remaining variable: time. When you’re staring at 70 cents per dollar, you might wonder if Uber driving is worth your time. While an important question, this is what I fall back on: the money and market for ridesharing didn’t exist prior to Uber’s arrival. There were fewer ways to monetize free/down time. Now, every few moment or time off can be an opportunity to earn.

If you’re interested in becoming an Uber Partner, use my referral to gain an extra $100 to start. And if you’re an Uber passenger or want to be one, use this referral link to gain a fe ride!

There are many caveats and exceptions, it’s hard to clarify them all in this article. If you’ve driven for Uber, or have experience as a passenger, or are thinking about driving, let me know in the comments below! I’d love to include any additional insight you have into this article, as well.

3 Vital Decisions for Financial Fitness

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Winter in Iowa

Winter is here in the Midwest. A breezy, 20-mph wind cuts through everything. The roads have an icy sheen. My breath is eviscerated as I walk out the door. I choke. My commute — a brisk jog — is bone-chilling. With my backpack rustling back and forth, I gingerly move from foot to foot. Frankly, despite the cold and madness of running in work clothes, I’m going to miss these days. I’m going to miss the toughness of this work and school routine.

I can feel my time in Iowa City is winding down. Over the next year and a half, I’ll move on to my internship (similar to a medical doctor’s residency). That internship will be in a new location — new peers, new streets, new names, and… new weather. As one chapter closes, another opens, right?

The decisions I make today will greatly affect where I end up — physically, emotionally, and financially. The next couple years include challenging financial concerns and I want to openly process them with you. There are three domains of my life that I’d like to consider: possibly buying a car, planning for travel/lodging costs associated with internships, and potentially moving three times in three years.

To buy, or not to buy… a car

One and a half years ago, I said sayonara to a hefty car loan and excess liability. The 2006 Honda Civic coupe was cool, efficient, and reliable. But paying off an $11,000 car loan with little money leftover to save or afford repairs felt dangerous. So, I sold it.

Since then, I’ve used my bike and feet to travel nearly everywhere. While I didn’t need to lose weight, the decision has kept me svelte and fit. When all you have is your physical health to get around, you tend to take better care of yourself. Simply put, I’ve enjoyed being car-less — it’s freeing.

I don’t lavish browsing Craigslist and other used car websites, but I’m increasingly sneaking peeks. In the next couple semesters and moves, a car could help me immensely. I’ll use it to go grocery shopping, visit my girlfriend, and potentially move into a more affordable housing complex. Without a car, these tasks become exceedingly difficult.

Now more than ever, I’m conscious I might be trying rationalize buying a car. That can be financially disastrous. Thankfully, I’m engaged in a careful consideration — unlike my first car purchase, which includes:

  1. Talking openly with family and friends
  2. Browsing used car sites patiently
  3. Scoping out values, which will hold resale and reliability
  4. Considering two price points: dirt cheap and car loan levels
  5. Reviewing how I could potentially get by without a car

I’m motivated to try and buy a car in cash, but heavily limited by my bank account, the stock market’s recent decline, and the two following tasks: internship applications and two apartment moves in the interim.

When I look at my bank accounts, I’m seeing a tiny number: $3487.93. While I’m happy and privileged to have a positive number between my checking and savings accounts, I’m concerned. I make little net income each month as a graduate student. Buying a car would drain nearly all of my liquidity. It’s forcing me to be careful — along with the reminder that I hate debt. I desperately want to stay positive in my net worth. If you’ve got some special advice about car buying or an offer I can’t refuse, hit me up!

Let’s talk about your future, young man

My time in Iowa City always had an expiration date. Graduate school is a relatively fixed duration of 5 years here and then a year-long internship — 6 years total. Afterwards, it’s time to finish up the requirements and look for professional opportunities. And this final transition can be painfully expensive.

In 2011, the average out-of-pocket expenses for applying and traveling to internships cost doctoral students $1,800. When asking classmates, they’ve cited costs around $2,000-$2,500 nowadays. With this financial burden in mind, and aforementioned funds, I’m in a bind. In the best case scenarios, it seems I either use a major portion of savings towards a car — with little remaining for internships — or dedicate it towards internships and remain without a car. At this point in my life, neither sounds smart.

Worse, I might have to take out a car loan to afford the internship experiences or a student loan to afford everything else. Those are both worst case scenarios for my financial present and future. I loath loans and cannot envision them being part of a healthy budget right now. These aren’t home mortgages; rather, complicated instruments that encourage spending, manipulate critical thinking, and have led me into deeper holes.

One thing I can do is redirect some poorly performing investments into internship savings, follow a close food budget for the next year and a half, and pour every extra penny into internship savings. With this drastic action, I might be able to buy a car in cash right now, while continuing to save for this decision. This version is an ideal, though. I’ve learned that financial decisions are often controlled by unexpected and unpredicted events, but I can try.

Moving out, moving on

After four years of easy living in graduate student housing at the University of Iowa, I’m dealing with one of the sadder moments of my time here: being forced to move. Financially, the current apartments I live in have become financially burdensome. When I moved to Iowa City, rent was a competitive, amazing $435 per month for a one-bedroom apartment. Compared to the greater community, rent was dirt cheap and offered month-to-month leases.

Two years after I moved here, a private company built new buildings and prices skyrocketed. Next fall, rents will be $999 for a one-bedroom apartment. That’s $564 in rent increases. I can’t afford this place anymore. It went from graduate housing to luxury living for staffers and University of Iowa faculty making far more than fixed-income students. While complicated, it’s a symptom of the privatization of public resources and universities.

Despite the previous increases, I’ve stayed for consistency and friends. Now, it’s time to move out and on. I’m looking further out from the city center. Prices would be lower and I’d be closer to grocery stores. With my final year in Iowa right around the corner, this is an inevitable and financially necessary decision.

Although, despite savings in rent prices each month, I’ll need to afford moving costs and rental deposits. Even in an effort to save money, I’ll need to spend some. Oh, the irony! And the situation becomes even more challenging: over the next three years, I’ll need to move three times. Moving costs and new rental deposits will be a theme for my life temporarily.

In short, money is tight. Three domains necessitate savings, planning, and careful consideration. Purchasing a car, financing internship applications, and moving will drain my savings, but I’m dedicated to avoiding debt and making smarter financial decisions. Previously, I would’ve made rash judgments and rationalized them as “completely necessary.” I would’ve said “I need to buy this [insert expensive item here].” Today, my financial state of the union is better than ever, but precarious. I have to be careful and decisive — rational and reasonable.

Income Power Parity Rules Everything Around Me

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University of Iowa Old Capitol Building

How does your dollar in Colorado equal another in South Carolina? Will your dollar always be a dollar? What does a dollar equal in Russia? What will that dollar afford you in one place, but not another?

These questions are at the center of something called “purchasing power parity” or PPP. This theory allows economists to compare different currencies, along with changing relative costs. Your dollar tends to go further in more economically disenfranchised countries, and shorter in the higher economic zones. To put it simply, prepare for a tiny dollar in Europe, and a hefty one in sub-Saharan Africa.

With this statistic, we can actually understand purchasing power. Whenever we change locations, our power changes. Our relative expenditures fluctuate in tow. Sometimes it’s in our favor – other times we aren’t so lucky.

Purchasing power emphasizes the potential of a dollar spent, but what about a dollar earned?

Let me explain.

In 2015, the average American college student will graduate with more than $35,000 in loans. A horrific 71% of students will graduate with loans, too. These statistics are just the beginning for many hopeful grads.

Bankers and shockingly, the federal government, line up their coffers and wait for that beautiful “cha-ching” sound. Those students will pay for years; heck, likely decades. The interest-bearing loans will build more and more debt over time. And if they pursue a higher education – say a masters, Ph.D., M.D., or J.D. – it’ll mean thousands more.

Here’s an example: pretend “Benny” goes to undergrad for four years, and graduates with $35,000 in debt. He was a good student – some even called him great. His grades were strong, and he decided to apply to counseling psychology Ph.D. programs. Benny researched all the ins and outs about psychology. He decided that it was right for him. Benny would be able to study topics that interest him, practice counseling, and develop a teaching ability. It seemed like a win-win-win.

Years go by, and Benny has been going further into debt. By now, four years into his Ph.D. program, he has about $150,000 in student loans. But Benny has also settled on what he wants to do: practice counseling psychology as a clinician.

This much in the hole, the world appears rather bleak. But for Benny, he self-soothes by calmly reciting, “This is an investment in my future.” At least, that’s what everyone keeps telling him.

Then, he graduates and steps out into the bustling world of career opportunities! Solid five-figure salaries shine, and he gets ready to start a new future, pay off his debt, and maybe buy a new car. He finds a starting counselor position at $55,000 a year and gets the job. Now, he thinks, the good life can begin.

Remember how I started talking about PPP? Well, there’s a parallel version for income, too. I’ve never read it anywhere, though. I’ll call it “income power parity” or IPP.

IPP would represent the relative value of a salary, when you account for student debt, car loans, and other regular financial obligations. For Benny, his $55,000 salary hardly equals $55,000. Between paying the tax man, loans (car and student debt), and potentially starting a new family, buying a house, etc., his money dwindles.

It will take years to pay off these atmospheric amounts of debt. And every day that goes by, the interest ticks on. More money will be owed and/or paid off over time.

Here’s where income parity comes into play. Benny is a counselor, getting paid an average starting salary for someone with his education. If he had gone a different route and become a social worker, he would’ve graduated faster; thus, lowering his amount of possible debt. While the average salary for a social worker is less than a counseling psychologist, would it have been worth it for Benny to choose this route instead?

Effectively, social workers and counseling psychologists (clinicians) do the same work. One gets paid less than the other. But if one has to collect more debt than the other in the educational process, who actually gets paid more? Who can save, invest, and collect more than the other in the long run?

These questions get at the heart of income parity concerns. With more than a trillion dollars in total debt, students are burdened with one of the toughest economic questions ever. They need to stare at salaries and ask, like no generation before them, “Yeah but, how much am I really going to make?”

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