Money is your friend; money is your enemy. Ever since I was young, I was never good with money. Like many kids I had a piggy bank. When it gets full, guess what I do with it. I spend it! Not a great practice when you’re talking about working towards early retirement. What I’ve learned about myself is that my self-discipline is weak and therefore I have to deliberately put myself in a situation to force me to save. I’ve figured out what works for me. Choose wisely your tax exemptions.

When you start a job, you fill out federal and state forms to claim your personal tax exemptions as described here. From TurboTax: The exemption reduces your taxable income just like a deduction does, but has fewer restrictions to claiming it. If you are married and file a joint tax return, both you and your spouse each get an exemption. So when you fill out your form, you can claim Single 1 (that’s one exemption) or Married 2 (that’s 2 exemptions because there’s two of you). The more personal exemptions you claim, the less taxes (federal and state) are taken out of your paycheck. In my early career, I didn’t really know what that meant. I was single so I selected Single 1.

At the end of each year, most people are required to file taxes. I used an accountant referred by a friend who actually got me a tax refund even though I claimed Single 1. This means that I paid too much taxes and the government owed me a refund. Fortunately, my refund was a nice chunk back which was a surprise. Because I received a lump of money at one time, I didn’t have the urge to spend it as I would normally do. I treated this money as something I lived without and put this into savings. This started a trend for me where I would take any lump sum of money I come across and put that into savings. If I lived without the money, I don’t see a reason why I needed it now.

I didn’t realize later on that I could actually change my exemption to Single 0 (zero). This means I’m not claiming any exemptions and that the government takes out more taxes from your paycheck. I changed my exemption to Single 0. Why? Well, when it comes to filing taxes, it will show that I paid the government too much taxes and the government will owe me a refund. And what do I usually do with that refund? I will put that into savings. My paycheck was lower but I was able to live and manage my lifestyle with it. What this did was it forced me to be in a position where I lived off of less money in my pocket but one time out of the year, I knew I was going to get a nice chunk of money. That one time moment each year had more impact on me when I saw my big fat refund.

My wife is an accountant. When she heard this, she thought I was crazy. She asked why would I want to give the government my money instead of keeping it myself. I could be putting that money into savings and gaining interest whereas I’m allowing the government gain interest off the money I give them. From an accountant perspective, that was a no no. My mentality was that if I have money at hand, I will spend it. If I get a chunk of money at one time, I tend not to spend it.

Needless to say, my wife handles the finances now so I don’t have to worry about this anymore. I bring home a paycheck and that’s all I need to worry about. This idea worked for me because I didn’t know better plus I was not very good with money. I had to force myself to be in this position. I think, in the long run, it helped me out financially and contributed towards my early retirement portfolio. This may not be an option for others and this isn’t advice to do so. This is something that helped me out. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.

To see all my previous articles, go to my Archive page.