How economically productive is your household? #TBT

Today's blog post was originally published last year. I was just thinking about this post yesterday because it's related, albeit loosely, to the series of posts I'm working on for next week.

Huh?

The Economic Productivity Index (EPI) measures how well you're doing financially and is based on a formula in "Millionaire Women Next Door" by Thomas J. Stanley. It's equal to your household net worth divided by your household annual realized income, which is simply your Adjusted Gross Income (AGI) found on your tax return. The EPI is just the inverse of your Return on Net Worth (RON) which I talked about here. The higher your EPI, the better; while a lower RON is better. (EPI = 1 / RON).

But how do you figure your net worth? The easy answer is that you subtract what you owe from what you own. Earlier today I found a list of assets...I think it was from the Census Bureau, but I can't find it again. But I remember that pensions weren't included, which was the basis of my net worth since I lost the house and cashed out the 401k during the divorce.

What you own...cash, cars, real estate, 401k, furniture, etc. What you owe...mortgage, credit card debt, etc.

To use the EPI to see where you stand you multiply the EPI by 10 and if it's equal to or higher than your age, you're in good shape. Where does the average American stand? According to the book, the average American has an EPI of 1.6, which would be really good for a 16 year old! EPI = $72,000 / $45,000 = 1.6.

How can you raise your EPI? By increasing your net worth and decreasing your taxable income. You can increase your net worth by spending less and saving/investing more. I use an app called Ibotta to help me save on things like groceries, Groupon and lots of others. If you use my link, we can be on the same team and we can earn extra team bonuses. I use two tools to help me save and invest...YNAB (You Need A Budget) and Acorns. YNAB makes it easy to budget and Acorns automatically invests for you by rounding up your purchases to the next dollar and investing the change for you. And if you sign up with those links we both make out...we can each get a free month of YNAB and $5 with Acorns. According to The Motley Fool, here are 10 Ways to Legally Reduce Your 2017 Taxes:

1. Sock away money for retirement.
2. Contribute to an HSA or FSA.
3. Hang on to your investments.
4. Buy a house -- or sell it strategically.
5. Make the most of deductions.
6. Bundle deductions.
7. Make the most of tax credits.
8. Have kids.
9. Make the most of being self-employed.
10. Hire a tax pro.    

 Number 5 applies specifically to reducing your AGI:

There are gobs of deductions available to taxpayers. Of particular interest are above-the-line deductions, which don't require itemizing and shrink your adjusted gross income (AGI), on which your income taxes are based. Above-the-line deductions exist for expenses such as alimony payments, self-employment taxes, IRA contributions, school supplies, student-loan interest paid, and more. Regular below-the-line deductions can be quite valuable, too. They include donations to charity and qualifying medical expenses, among many other things.

My EPI is nowhere near where I want it to be, but with the tools I mentioned above, I'm working at saving and investing money to increase my assets and taking advantage of the 10 ways to reduce taxes (especially 5 & 9) to reduce my AGI.

Interesting days

Today - World Poetry Day, Common Courtesy Day, French Bread Day, Single Parent’s Day, Memory Day, World Down Syndrome Day and Slytherin Pride Day

Tomorrow - Goof Off Day, World Water Day, As Young As You Feel Day and Gryffindor Pride Day

Week long celebrations:

Mar 18 - Mar 24: Introverts Week

Next Thursday - Weed Appreciation Day, Black Forest Cake Day and Something On A Stick Day

April 21 - Kindergarten Day, Bulldogs Are Beautiful Day, World Creativity and Innovation Day, American Red Cross Giving Day and Chocolate Covered Cashews Day