Okay. I get it.
Math teachers failed you.
I failed you.
You’re now an adult and realizing that the quadratics are worthless. In my defense, it’s a fundamental cornerstone of mathematics and physics. But, here you are. Here we are.
You keep posting on social media about how your math teachers never taught you about mortgages or taxes. Both of these things are about money.
Money is represented with numbers.
I was responsible for teaching you about numbers.
Therefore I failed you.
Well, guess what?
Here you go.
If you pay rent, then you’re likely helping to pay someone’s mortgage. A mortgage is a homeowner’s monthly payment towards their loan for a house. A house costs a lot of money. And most of us can’t afford to pay for a house with cash because it’s not 1955 and we didn’t exit the Army with a salary that supports a family of four. When people refer to their “mortgage,” they’re usually referring to their escrow, which is made up of three parts: a home loan, home insurance, and property taxes.
The home loan is the amount you borrow to buy the house. The loan repayment has two parts: the interest and the principal. I’m not going to explain how interest works because we definitely covered this in math class and it’s not my fault you barely passed, you lazy piece of sh*t. I will say this: A lot of people wonder what their credit score is or why it matters. The better your credit score, the lower your interest rate is set. It’s a number that reflects how responsible or trustworthy you are with debt. The lower your score, the higher the interest rate, which leads to a higher monthly payment. The higher the payment, the harder it is for you to save. Ever wondered how our system makes it difficult to climb the financial ladder?
Home insurance covers you in case something bad happens. For example, if there’s a hail storm and it irreparably messes up your roof, your insurance company will pay for you to get a new roof. Insurance never covers as much as you think it does, so when something bad does happen, you say to yourself, “Hey! What the hell? I thought this is what insurance is for? I would have rather saved that money and paid for my new roof with that savings!” Except insurance is mandatory, so it’s a racket. Sorry.
Property taxes are an extra payment rate set by your local government. The more your house is worth, the more you pay in taxes. Who decides how much your property is worth? Your local government. Welcome to the wonderful world of conspiracy theories surrounding property values. What do taxes go to? Oh, just things like schools and public infrastructure. Sometimes there is a local initiative to build a new public park — your taxes pay for that. Don’t have kids that use the public schools? Too bad, your taxes will still go to that. If our schools were funded better, I wouldn’t have had to drive Uber on weekends.
And that’s what an escrow is. More valuable than trigonometry? You be the judge.
Second: Filing Taxes
Taxes 101: How to File Taxes
Every year, sometime around February through April, you’ll get some tax forms in the mail from your employer, student loans, banks, and anywhere else you’re connected to the exchange of payments or income. Keep these forms in a safe place. They are not junk mail. Go to TurboTax. Fill out the free form (unless you have a reason to pay for the advanced options, which they will walk you through). Click submit on the forms.
Bam — you’ve done your taxes.
Important advice here!!! Be aware of whether taxes are taken out of your paycheck. If they aren’t, you need to save upwards of 25% of your income to make sure you can pay taxes on it later. A lot of folks think the extra $500 they make a month driving for Lyft is great, but the government is expecting you to cough up some of that money come tax day. In today’s gig economy, this is critical knowledge. Here’s more information on that.
Taxes 201: Advanced Taxes
It isn’t what you think. Ever heard of tax brackets? You know that thing where people say, “Well yah, I got a raise, but now I just pay more in taxes”? Besides being ungrateful, they’re also most likely misinformed.
The United States has a tiered tax rate, rather than a fixed tax rate. A fixed tax rate would mean every dollar you make is taxed at the same rate for everyone. It’s a controversial political topic. If you’re a millionaire you’d pay the same rate as someone on minimum wage. You can form your own opinion about how it should be done.
The tax rate we do have, a tiered tax rate, is poorly understood. Many people think that if they make more money, they move into the next bracket. For example, let’s say you make $84,000. The current tax bracket for that is 22%. You get a raise! Congrats! You now make $85,000 and your tax rate is 24%. People think that your first situation means you paid 22% of $84,000 or $18,480 in taxes and then 24% of $85,000 or $20,400 in the second situation. Effectively they think the $1000 raise mean they paid $1920 more in taxes, netting them a loss of $920. That’s simply not how it works. Instead of doing a longer write up here, just watch this 2:48 long video made by Vox. In short, the $1000 raise means that the extra $1000 was taxed at 24% instead of 22%. So the government took $240 of the $1000 instead of $220, and the rest of their income ($84,000) is taxed exactly the same way it was taxed before.
But how does this apply to your life? Now that you know how income taxes work, you are allowed to shake your fist during tax season with power.
So there you have it. All your resentment against math teachers can just melt away. Now, if only your English teacher taught you how to use a f*cking semicolon.