Negative Wealth Bombs

That title there is a take off from another blogger and fellow mustachian, Mustachian Acolyte.  Check out his blog "Towards Mustachianism" here.  He wrote a few months ago about a "negative wealth shock."  I like that term as I think it engulfs the full feeling and meaning of what it is to suddenly lose money.  Be it a lost wallet, a sudden expense, a broken sink, or an unexpected trip to the hospital.  I also like it because I think you could use the opposite, a positive wealth shock, and still express the meaning fully.  Many people when they suddenly have a positive influx of cash are shocked and have no idea what to do with it.  Unfortunately in many cases I think they probably squander it.

Well if wealth shocks are on a smaller scale, say $500 or less, than I just had a "negative wealth bomb" go off in my face.

You see I have to start paying taxes.  Yeah, taxes.  Here's the story:

In Japan, like the US, you have federal taxes.  You also have ward or city taxes.  These are a bit like State taxes.  The federal tax to my understanding is a 5% tax on just about everything (they are trying to raise it to 10% now).

I came to Japan in 2007 on the JET program.  Not only is the JET program one of the better paying jobs in Japan but there are many side benefits as well.  They pay for your plane ticket to Japan and your return flight when you finish.  JET pays for your stay in a nice luxury hotel when you first arrive in Tokyo.  Then for your bullet train ticket (or plane ticket for those in Hokkaido or Okinawa)!  Another hidden, and I think often over looked, benefit of the JET program is you don't pay ward taxes!  Yep!  No city or ward taxes.  Well, okay, your board of education pays for them.  It's not completely free in the sense that nobody is paying them, but it wasn't coming out of my back pocket.

So there I was for three years on JET no taxes.  I also didn't pay taxes back in the USA as I was a bo-ne fide resident in another country.  I left JET in 2010 and came to Yokohama.  I started a regular job as an English conversation teacher at a language school.  Soon after that I was hired to teach high school at a private university owned school.  The pay was much better and the hours easier.  All this time I was not paying taxes.

In Japan your city or ward taxes are based on your previous years pay.  I was on JET for most of 2010 so that year was out.  I worked in 2011 but because 2010 was JET and the board of education paid my taxes I didn't have to pay anything last year.  Now however I am paying for 2011's wages.  Ugh.

Don't get me wrong!  It's not like I was playing hide and go seek with the ward office.  I actually sent them in my equivalent of W2's twice.  But they never got back to me and never sent me a statement.  I just figured "Well I'll keep investing," knowing that this ticking time bomb is sitting right next to me.  Slowly the timer reached zero and now I have to start paying.

This is a big shock to my investing plans which did not include this extra expense.  It's about 6% of my take home pay which is a big chunk.  I feel this leaves me with a few options now.

1.  I can start to work more.  I have a part time gig at my old English conversation school.  If I worked about 10 lessons a month I would start to make up the difference for the newly minted taxes I'm paying.  (I realize that by working more I'm also going to be paying more taxes but at least I'll catch up).

2.  Reduce my expenses.  This is something I haven't written about very much because I feel that I am pretty frugal as it is.  But looking at my numbers, honestly, I feel that I can do better without much reduction in lifestyle but a huge drop in expenses.  Hopefully more on this in a future post.

3.  Do nothing.  I still make more than enough to live on.  The exchange rate is still on my side.  I could just take the hit and end up investing less.

Of course the Mustachian thing to do is a combination of 1 and 2 and that is the path I will strive for.

To be honest I don't mind paying my taxes.  I think Japan is a great country and Yokohama is an excellent city.  Clean, safe, and beautiful.  Japan shouldn't have to change, and so I will.

P.S.  You might be asking yourself "But what if you leave half way through a year?  What happens to the taxes based on that year so far?"  Well actually you are supposed to go to the tax office and tell them you are leaving.  They will then just give you a big fat bill and you are expected to pay.  If you don't, have fun every trying to get back into Japan again.  I have a co-worker who is dealing with this right now.