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Tax Time

Accounting

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I finally got around to filing my taxes.  I wasn’t procrastinating because I owed money; on the contrary, I was receiving refunds from both the federal and state government.  It just took me awhile to find a solid 2 hour block of time to get them done.  When I was finished, the tax program that I use gave me a comparison to the previous year’s taxes as a way to make sure I didn’t miss anything.  I found it far more useful to see how my finances changed over the past year and since I’m writing about it, that means you get to take a look with me.

Wages

The first item of comparison is wages and only shows a difference of $1,900.  This doesn’t quite tell the entire story.  To satisfy my own curiosity, I looked at my gross pay for 2013 and 2014.  In 2013, I was paid a total of $106,000 between salary and bonus.  In 2014, the number rose by $8,750 as I received a salary increase and a larger bonus.  So, why might you ask did my wage comparison only change by $1,900?  The reason is that my taxable wages only went up by that amount because I took advantage of more tax-deferred accounts in 2014.  In 2014, I contributed an additional $1,200 to my 401k and I also fully funded an HSA.  Those two things combined lowered my taxable income by almost $7,000.  So, while it may not look like my income changed all that much, it actually did and I just increased my savings.

Dividends and Interest

The next two items to look at were dividends and interest.  Now, the change wasn’t huge, an increase of about $300 from 2013 to 2014, they do represent a much improved financial picture for me.  Since I have an additional $300 in interest and dividends that means my savings and investments have increased.  This was due to a combination of a larger bonus than usual, as well as money I received from an inheritance.  We continue to funnel money monthly towards the brokerage account on a monthly basis, but the savings account only has monthly deposits for our spending buckets.

Deductions

I have itemized my deductions every year since I bought a house, as that’s usually the most tax efficient thing for me.  What’s interesting about the comparison this time is that 2014 was significantly higher.  The reason being was that in 2013, part of the inheritance I received was an IRA.  Ideally, I would have left the money in the IRA and just taken out what I was required to every year.  However, it was better for my overall financial picture to take a lump sum distribution.  By taking that distribution though, I lost the ability to deduct mortgage insurance as my Adjusted Gross Income was too high.

That lost deduction was about $4,000, which meant I had pay taxes on an additional $4,000 of income in 2013 as opposed to 2014.  When I file my taxes next year, the situation will be reversed as I was able to eliminate paying for mortgage insurance with my refinance a couple months back.  I’ll happily pay the additional tax if it means I eliminated the $3,600 a year expense.

Refund!

The total tax bill and refund amounts were the last big differences.  Total taxed owed decreased by over $4,000 from 2013 to 2014.  That was driven in large part to the IRA distribution.  The IRA added almost $20,000 to my income in 2013 and as such, added almost $3,000 to my tax owed.

I had planned on owing the additional tax, so it wasn’t a big impact on my budget as I had adjusted my withholdings so that I wouldn’t owe anything come year-end.  In fact, I got a small refund of $161 in 2013.

In 2014 my refund increased to about $1,400.  The larger refund was driven by a larger bonus in 2014.  The taxes withheld from the bonus were higher than needed.  I could have adjusted my paycheck withholdings to minimize the refund, but I planned on using the refund to help fund the surprise trip for my wife.  Since she doesn’t pay attention to the refund amounts, since they are normally really small, it was an easy way to squirrel away a little more money for the trip.

How did your taxes compare with last year?

 

Did You Lose Your Job? 3 Things That Will Help You Get Back On Your Feet Again

Money

Being unemployed can be a very stressful time in your life. Here are some tips on how to find a job and get back on your feet again as soon as possible.

1.) 5 Steps to Get Out of the Unemployment’s Vicious Cycle

  1. Network – Networking is a great way to find leads on jobs. Sit down and make a list of everyone you know and start making phone calls. Ask if they know of any jobs open with their companies and if they could refer you or any positions. Don’t be too picky if what they suggest is not exactly what you are looking for. The important thing is to get your foot in the door and start working again. Once you are established in a company you can also try for a job more to your liking or with more pay in the future.
  2. Volunteer – While it may seem counterproductive to work for free when you are looking for a paid job do not overlook this important option. Once again it is all about getting your foot in the door. Volunteering is a great way to gain skills and get contacts that could lead to a paid position. Find a company that you does something that you enjoy or feel passionate about and begin volunteering. This will allow employers to see what kind of worker you are and the kind of work ethics that you have and when a position becomes available they will be more apt to hire you for the job rather than looking elsewhere. This is a great way to get solid references as well.
  3. Adjust your Attitude – Being unemployed can be very hard on your mental emotions but you will never get hired if you don’t have a good attitude. Be willing to do the job that is available and more. Go into the job search with the attitude of ‘I am ready to work and help my company’ rather than ‘I need a job.’
  4. Use the Internet – The days of looking in the paper and circling help wanted ads are pretty much over. Most businesses advertise online while looking for employees. Use all of the online job search engines you can to get the most up to date information on jobs that are available. This includes sites such as Monsterjobs, LinkUp, Indeed, and Simply Hired. Federal Jobs can be found at USA Jobs.gov.
  5. Follow Up – Once you have found a job opening and applied for the job you are not done. Send a follow up letter or note to let the employer know that you are still interested in the job. If you have been interviewed and are waiting to hear back send a thank you card to the employers telling them how nice it was to meet them and how excited you are about the company and your future with them. This will show the employer that you are really serious about working for them and not just going through the motions. It will also keep you fresh at the front of their minds which is a good place to be. Good, prompt polite follow up could mean the difference between getting the job or getting passed over.

2.) How to be prepared for the Big Interview – Once you have found a job opening and submitted your application and resume the next step is the interview. You might look good on paper but if you don’t have a good interview chances are you will not be offered the position. The interview is very important. In order to be prepared there are certain things you will need to do.

  1. Dress appropriately and professionally. The saying ‘dress of success’ applies here. Dress for the job and put your best foot forward.
  2. Practice interview questions so you have a ready answer.
  3. Be enthusiastic and sincere.
  4. Be ready to tell them about yourself.
  5. Be honest about your job skills.
  6. Don’t talk too much and monopolize the conversation. Stay on topic.

3.) How to Get Ready for Hard Period without Income – Not having a steady income while looking for a job will put a difficult strain on you. Ideally you will have some money in savings to get you through but that is not always the case. Until you are once again bringing in steady payment there are a few things that will need to be done.

  1. Mental preparation – it can be depressing not having any money and you will need to be mentally prepared for that. Some things in your life will have to change when you are unemployed. Going out to eat and buying things that are not necessary will need to stop. Keep in mind that the period of unemployment will not last forever. Stay positive and cut your spending to get through this period of time.
  2. Consider taking out a loan – if you do not have savings to fall back on it might be necessary to take out an unemployment loan to cover your expenses such as car loans and mortgages along with food and other necessities.
  3. There are many places that will offer cash loans for people who are unemployed but be sure to read about the payback procedures, timeline and interest rates.

Are You Missing Out On This Opportunity To Clear Debt?

Being in debt isn’t much fun, although the achievement of paying it off can be very rewarding. Having the worry of debt hanging over your head often creates stress that can make it difficult to think straight and come up with strategies for paying it off sooner rather than later.

That stress and worry can cloud thinking to such a degree that it can make you unaware of any situations where you might actually be owed money, rather than the other way around.

If you’ve ever taken out any kind of financial product, it should have been sold to you in accordance with rules and guidelines that are meant to protect you and ensure that the policies you take out are in your best interests and benefit you.

Sometimes, however, people that sell financial products can be overzealous in their effort to earn greater commissions, resulting in them selling products that are not in the consumers favor or in some cases, selling policies that are absolutely useless to the consumer

Mis-sold financial products are more of a common occurrence than one might imagine and if you’ve ever unknowingly fallen victim to such practices, you may be leaving a reasonably significant sum of money sitting on the table.

What Is A Mis-sold Financial Product?

A financial product is usually anything related to banking or payment protection on loans, credit cards and mortgages. One such type of loan insurance is payment protection insurance (PPI), which is designed to cover your repayments on loans or credit agreements in the event that you involuntarily find yourself out of work.

PPI currently has a bad reputation in the UK because it is now officially the biggest financial scandal in the UK’s financial history. Millions of policies were sold over a number of years, generating revenues in excess of £43 billion ($66 billion).

Unfortunately, a significant portion of those policies were sold in a way that was outside of guidelines and the best interests of the consumer. The result? Millions of people are now claiming back what they are owed, along with 8% interest to cover what they would have earned had that money been sitting in their bank account earning them interest.

How Much Are You Owed?

If you think this doesn’t affect you, it would be wise to look into things before you come to that conclusion.

One of the most common ways of mis-selling the product was to tag it on to loans or credit agreements without your knowledge.With the average industry-wide payout being £2,750, with some payouts as high as £85,000, it really is worth looking into further.

If you are currently repaying a debt with interest attached, receiving a lump sum of any kind is going to be very beneficial to you.

One important thing to find out before starting the process of claiming back what you are owed is to get an idea of what that figure should be. Not content with mis-selling products in the first place, some banks have actually been found to be short changing their victims with their refunds, so it’s wise to have an idea of what your refund amount should be in case your bank tries to do that to you.

You can get a good idea of what you are owed by using a PPI claims calculator, which will allow you to compare that figure to the offer you receive from your bank and know if they are playing fair with your claim or not.

Attempting to Save on Home Annoyances

Home

The following is from my husband, Len Stemberger.  Yes, that is a miracle.  He has only guest posted for my main site, budgetinginthefunstuff.com, once.  In 5 years…

Like most new things, building a new home is a bit of an adventure, and once it is finally done, you enter into a honeymoon period. The house is wonderful; everything is as you always dreamed it would be; and the smallest details amaze you.

Losing the Shine

But, also like most things, this euphoric feeling wanes. The smallest details begin to annoy you, and you realize that your dream idea may not work so well in practice.

For me, this moment occurred rather quickly. And, to be honest, it wasn’t the house’s fault, and it wasn’t the fault of the builder – or at least not the people who actually built the house.

The problem: our dish washer.

Really, I blame my mother-in-law. See, in our last house, my mother-in-law bought us all of our kitchen appliances – refrigerator, microwave, oven/stove, dish washer, washing machine, and dryer. They weren’t fancy – just simple, efficient, and very effective. I loved that dish washer. Not at the time mind you – I didn’t realize how good I had it.

Crappy Dishwasher

It wasn’t until we really got everything moved in and settled in our new home, that we began using the dish washer on a regular basis. The problems emerged.

Our new dish washer is worse in every way compared to our old one. It holds fewer dishes. It does a worse job cleaning (even with pre-rinsing which we never had to do with our old one). It does a lot worse drying – you need a towel to dry the dishes that came out of the washer (and that’s with the fancy heated dry option on).

Now, there is nothing left to do but either live with it or replace it. So every Sunday, when the paper arrives, I flip straight to the Sears ad just waiting for the day that the deal is too good to pass up. I also keep an eye on the Sears section of Groupon Coupons so I can combine a great deal with a discount too!

One day it will arrive, and the scourge of the dreaded dish washer shall be removed from our lives. But, until then, I suppose there are always paper plates when I just can’t bring myself to drying dishes by hand…

What about your home annoys you? Is there something about a previous home that you really miss?

Lesson Learned

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

You would think that I would have learned this lesson over the years: Always do your homework. Maybe I was just lazy, but my mistake probably will end up costing myself a few hundred dollars.  The good news is that I am going to save myself thousands.

The Refinance

A couple of months ago I thought maybe it would make sense to refinance my current mortgage to eliminate the mortgage insurance I was paying.  When I bought my home a few years ago, I did not have the 20% necessary for a down payment.  As a result, I had to pay mortgage insurance.  It was a little over $300 a month.  That’s simply money down the drain.

A friend of mine just bought a house, so she recommended the bank that she had used. I contacted them to determine what options I had for refinancing.  The bank could do a refinance with a primary mortgage and a home equity loan.  The primary would be 30-year fixed at 4%, with the home equity line a variable rate, currently 5%.  The total cost of the loan, compared to my current mortgage was basically a wash.

The biggest upside was that this would eliminate the mortgage insurance.  It would also save me some money on a monthly basis, roughly a $100.  The biggest downside is the variable rate, as I believe interest rates are going up sometime in the future.  If and when interest rates rise, so would may payment.  I was willing to make this trade off, as I am locked into the mortgage insurance for another 7 years.  Since the deal sounded pretty good I started the process of refinancing.  What I should have done, was to investigate other lenders to see if I could get a better deal.  I sent the money in for the house appraisal to begin the process.

The Issue

The appraisal came in slightly lower than I expected, but still high enough to go through with the refinancing. One of the things that changed was that I would have some additional closing costs that would be rolled into the loan.  As all the paperwork was being worked on, I noticed that rates on the bank’s website had come down.  Since the rate lock agreement I had signed was only a couple of weeks away from expiring, I inquired what would happen if the lock rate expired before I closed on the mortgage.  Turns out, if rates went down, I would not get the benefit of the lower rates.  While I understood this, I was not exactly happy about it either.  This was the trigger for me to do the homework I should have done all along.  So, I contacted a few other lenders to see what other deals were out there.

Our Decision

After discussing my situation with other lenders, I found a better deal for my mortgage. The new deal was all one mortgage.  My high credit score qualified me for the lender to pay the mortgage insurance.  When I did the math, I will save about $15,000 over the total cost of the loan.  Even though this loan had a slightly higher interest rate, 1/8 of a percent (4.125% overall), it had lower closing costs.  The first refinancing option also had the home equity portion as well at a higher rate.

The end result is that I will probably lose the money that I paid for the first home appraisal. Had I done my homework initially, I would have found the lowest cost option to start.  I guess, since I went with the best option in the end, there is only a little bit of financial pain.  I will remember that pain then next time I have to make a financial decision.

Plugging a Hole

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I was bad. I spent more money than I should have spent.  The good news is that the over spend came from my allowance, so the damage was minimal.  Still, I was in danger of not having the savings that I wanted by year-end.  I planned on having $600 set aside by the end of the year for the surprise trip for my wife in a few years.  Poor impulse control led me to spend too much money.

The Spend

The biggest expenses I had were a couple casino trips that I had not anticipated. I have not really been to the casino much in the last few years, so I had not set aside money for gambling purposes.  I ended up going with my good friend a couple of times.  I went mainly because he was having heart surgery.  He and I went once before the surgery and then again a couple of months after his surgery.  We both had a great time.  I think it also helped my friend after the surgery as he couldn’t drive, so it got him out of the house.  So, in that respect, the money was well spent.  However, my luck was nonexistent at the casino and I lost everything that I took.  What this meant for my finances is that I would be falling about $150 short of my year-end goal to save $600 for the trip for my wife.

Extra Income

Since my allowance is fixed I was initially just going to accept the $150 shortfall and make up the difference next year. I was not exactly excited about the idea, but felt it was probably inevitable.  I then began seeing a bank advertise a bonus for opening up a checking account with them.  The bonus was $100.  It probably took a few weeks of seeing the ads before I started considering opening the account.

I finally investigated the conditions necessary for the bonus.  I would need to have at least $250 direct deposited into the account over a 60 period and keep the account open for 90 days.  The account’s only requirement to avoid any monthly fees is that I have to have at least one direct deposit into it every month.  This seemed like an easy $100 to make.  I can easily adjust my paycheck direct deposits with a few simple mouse clicks.  So, now all I have to do is wait for the bonus and then transfer all of the money back to my savings account.  The remaining shortfall was made up via another checking account bonus.  This one was even easier.

Since I have a Discover credit card, they were offering a $50 bonus to also open up a checking account.  There were no restrictions or conditions necessary to receive the $50, just open up a checking account.  That felt like a no-brainer to me.  So, with a little paperwork, I was able to pick up an extra $150 and plug my deficit for the year.

Morality

It took some time to think about opening the accounts. I wondered whether it was ‘right’ to open the accounts.  I had no intention of keeping the accounts, just of getting the bonus.  The more I thought about it, the better I felt about it.  I reasoned that I was following the conditions without bending rules or doing anything dishonest.  There was nothing illegal about opening the accounts just for the bonus and then closing them shortly thereafter.  By abiding by the conditions the banks set forth for the deal, there was nothing wrong with opening the accounts.

Future Budget

Since it looks like I’ll probably be headed to the casino more frequently (more than zero times), I should plan for it. I don’t want to be in this position at the end of next year.  Have you taken advantage of any bank incentives to your advantage recently?

Middle Class

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

When it comes to financial articles, I usually fall for click-bait. Such was the case when I came across this article a while back.  The article discusses seven things that the middle class can no longer afford.  I consider myself middle class.  I am probably upper-middle class with and annual income around $100K.  So, naturally I was curious about the things I was supposedly unable to afford.

Vacations

This first item listed is vacations. This is not something that I have given up.  Granted I don’t take an expensive vacation every year, but my wife and I still get away for a few days.  I am saving for two big vacations.  One is a family vacation to Disney World.  I am expecting the cost to be about $10,000.  The trip is planned for roughly 3 years from now.  I have been saving for it for the last couple years and should easily have the money when we need it.  The second vacation is the second honeymoon I am going to surprise my wife with.  That trip is going to cost in the neighborhood of $6,000.  That trip is also budgeted and won’t be an issue financially.  I think for middle class earners, a little planning can keep vacations easily accessible.

New Vehicles

I think the issue with cars, is that people buy too much car, much like they buy too much house. They then compound the problem by not driving the car for a long time.  My wife and I have two cars, one is 3-years old and the other is 13-years old.  Neither one of the cars is top of the line nor have all of the features you could buy.  By being sensible about what we buy and only buying what we need, we can still afford to buy a new car.

To Pay off Debt

Do I have debt? Yes, a car loan and a mortgage.  I could pay the car loan off, but with an interest rate less than 2%, it is not my priority.  I do not have any credit card debt, nor do we have student loans anymore.  We paid all of that off within the last few years.  Sure, we could have used that money for other things, but paying off those debts was a higher priority.  I think that’s the issue most people have, prioritizing where they want their money to go.

Emergency Savings

My emergency savings aren’t quite where I want them to be yet. I have about $15,000 dedicated for emergency savings and another $10,000 that I could use if it was a true emergency.  Establishing the emergency fund was one of my top priorities when I was digging out of my hole.  When life’s unexpected expenses would pop up, it would put me back in the hole.  The cushion allows me to absorb life’s expenses without having to go into debt.

Retirement Savings

This one is simply people not prioritizing the future. I currently set aside 7% of my gross pay and my company contributes another 8%.  When people say they can’t afford to set aside any money, they are simply not prioritizing their retirement savings.  Instead, they are going out to eat, buying a new TV, or buying the latest iPhone.  Sure, all of those things are nice, but not having to work the rest of your life is nicer in my opinion.

Medical and Dental Care

The article listed these two separately, but they are essentially the same to me. I’ve experienced both this year, first with my root canal and then with surgery for my little guy.  I was able to handle the expense for both because of my HSA.  I had been saving the money throughout the year in the HSA and used it when the expenses came up.  Once again by planning ahead, I was able to handle the expenses when the unexpected happened.

Plan Ahead

In my opinion, the middle class can afford all of these things with a little planning. Since their income is limited, the middle class just needs to prioritize where their money goes.  They may not be able to take a vacation every year or a buy a new car every 3 years, but it doesn’t mean they can’t have them at all.  By setting a little bit of money aside each paycheck, all of this is possible.

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