Foundational Expenses

Let’s examine three foundational expenses under your control. The decisions you make here have a profound impact on your financial outcome.


Likely this is your biggest annual expense. Many people don’t think too much about taxes except when they file them.

Income Tax (based on 2019 tax rates):

Federal income tax and state income tax. I highlight two examples below. Wisconsin has high state income tax and Texas has no state income tax.

In both states we start with 100k household gross income before taxes. We reduce the Texas couple’s income by 39k off the top due to 401k max contributions. The Wisconsin couple does not contribute to retirement plans.

  • Wisconsin couple pays 21.5k in annual taxes and Texas 11.5k. That’s a 10k difference per year less in annual taxes!


Assume the Wisconsin couple buys new Subarus every 5.5 years. And if each of these cost 30k, then this is the national average. And they have two car payments of $479 each per month. not including higher insurance costs on the new cars.

A typical American family with two new cars financed each 5.5 years. $11,500 in after-tax income for the Wisconsin couple goes to car payments.

The Texas couple doesn’t buy new vehicles every 5.5 years and prefers to drive paid-off older cars.


The Wisconsin couple buys a four-bedroom house for those few nights a year they host overnight guests (2500 square feet):

The Texas couple is content with the smaller 3-bedroom house (2000 square feet):

They save $400/month (5k per year), by having 1 less bedroom. This does not include the reduced upkeep and utility costs.

Result After 30 Years

The Wisconsin couple invests their annual savings ($12,720/year) in after-tax brokerage accounts – instead of retirement plans. What is the result after 30 years?

Would you rather have $4.5 million or $1.5 million at retirement at 65?

This is a case-study. This simple analysis does not cover all factors. The point is if you solidify the big three financial structural elements, you improve your odds of success. And you enjoy greater flexibility to not scrutinize smaller every day financial decisions. Here is a recap of the choices the Texans made:

  • Chose to live in an income tax free state. There are seven: Texas, Alaska, Washington, Wyoming, South Dakota, Nevada, and Florida. This is a wide range of geographic regions and many of these states have very healthy economies.
  • Chose to max out 401k pre-tax contributions (19.5k per year each) and reduced federal income taxes.
  • Chose to drive older cars and not replace them every 5.5 years
  • Chose to live in a smaller house

That’s it. Those 4 choices yield a $4.5 million-dollar retirement portfolio 30 years later, allowing them to take over $15k in monthly income. The choice is yours. What type of foundation will you build your financial house on?                           

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