Finances for Fun

Enjoying the Journey of Personal Finance

My 2011 Taxes

February 8th, 2012

Every year about this time I get out my folder holding any tax info I’ve put away over the past year and start on my taxes. Over the past week, I’ve been attacking it bit by bit every night. Because of a few events in 2011, things have gotten…complicated. I’ve learned a lot through this years tax return and I want to share it you with because these are issues that most everyone will face at one point in their life-I just happened to have them occur in quick succession.

Crazy 2011

I’ll start by giving you a little background as to what I was up to in 2011. I started the year living in Fayetteville, Arkansas and attending graduate school. I was planning on completing school in the summer and so began looking for a job. I had gotten engaged in late 2010 so was also planning a wedding that would happen in June 2011. In early spring 2011, I accepted a job that would require a move to Little Rock, AR after I was done with school. Mrs. FFF (Ms. FFF at the time) and I bought a house in Little Rock in April 2011 and moved in when we got married in June. We both graduated school and I started my job in August. Just a few days later, Mrs. FFF was hired as a teacher and started her job. Also, we began paying on Mrs. FFF’s student loans in late 2011. So just to summarize, in 2010 I had a simple tax return with one source of income and that was it. In 2011, here’s what I added:

Married filing jointly
Both spouses completing school and paying tuition
I had been on a fellowship that paid monthly stipends that was not taxed
We bought a house and payed PLENTY of mortgage interest as well as mortgage insurance
Moved more than 50 miles because of a new job
Both spouses accepted and started new jobs
Payed interest on student loans

I don’t know about you, but 2011 was a busy year for me compared to what I had known before-just trying to make it through grad school. When I sat down to do my taxes, I realized I would have to do some research.

Thank goodness for TurboTax

I spent several hours reading up on what type of tax breaks I could get and what I might have to pay. I was excited when I realized that mortgage interest and mortgage insurance are tax deductible. I was not so excited when I remembered I would have to pay taxes on my fellowship stipends I had received. I got excited again when I learned moving expenses for a new job were deductible. Again, even more excited that the interest on student loans was also deductible.

So I had all of these deductions I knew I could take advantage of, but I didn’t know how. I’m willing to bet many of you have been in a similar situation-knowing or hearing of rumors about deductions you can take for this or that. Fortunately, technology has made filing taxes easier. Using TurboTax, I was able to do in a period of more like 12 hours what would have normally taken several days.

TurboTax is definitely not new, and I’ve used it before, but I had never taken advantage of the complexities of the software that can find all the ways in which you can save money. By using the paid version, I was exploring deductions and saving money on my taxes in ways I had never heard of, much less ever used.

For example, did you know that if you move because of a job and the distance to your new job from your old residence is more than 50 miles greater than the distance to your old job from your old house, you can deduct all moving expenses? For example, if I had lived in City X and commuted 15 miles to Job Y, Job Z would have to be 65 miles from City X to get the tax break. This helped me tremendously because I had made several trips at a time at which gas prices were high. Also, on one trip I rented a U-haul which costs a good bit plus the gas. Needless to say, this one thing was a great savings to me and Mrs. FFF. And that’s just one example of the ways that TurboTax was able to help.

If you have what you would call a “complicated return” I would DEFINITELY recommend using a paid tax software or going to a professional. While penny pinchers like myself don’t like the idea of paying someone to do something I could do on my own-its more than likely a great investment based on the amount of money it can potentially save you, or MAKE you!

Have any of you ever encountered what you would call “unusual” deductions? Has using a paid tax software or a tax professional helped you to get a greater refund? Would you recommend it to a friend? Which one?

The Basics of Saving: Part 3-Automatic Savings

February 7th, 2012

Today I’ll be discussing the last topic in a 3 part series on the Basics of Savings. Although it’s the last post, it is arguably the most important aside from the initial decision to begin saving. The first two points, finding a good interest rate and creating goal oriented savings accounts, are important in making sure that the money you save grows and that you have a defined plan. However, without the third step, many people fail to ever meet their goals because their savings they plan for don’t ever reach their account. Let me show you what I mean through a personal story.

When Mrs. FFF and I got married, one of the first things we did after getting back from our honeymoon was to sit down together and make some savings goals. We decided on some of the things that we wanted to save for and determined how much we would put in each account every month. I was so excited-we were on track from the start. That first month, we put the right amount into each account and everything was great. The second month, we decided to get some more dishes for our kitchen in the new house. Towards the end of the month the mortgage payment was due and we had just enough to cover it. Somehow we had overspent our budget. We only had enough left to fund one of our savings account so we decided to distribute it among all of them. We ended up only putting in a fraction of our planned amount into each account. I told myself next month we would do better but I knew something had to change–that’s when I decided to enroll in automatic savings.

Automatic Savings

As humans, our minds prefer to have things done for us and to take all the guesswork out of it. The easy way is the way in which you don’t have to do a thing. Thats the reason many people have secretaries-they take care of the day to day tasks that need to be done but that we don’t necessarily want to spend time remembering to do.

Automatic savings works the same way. Without money ever hitting the account, the best savings and investment strategy means nothing. That’s why I believe it’s essential to enroll in automatic savings.

There are several ways to do this. The best and easiest way to do it is to have your employer split up your paycheck and deposit your savings into one account and the rest into another-your main checking account. This way, you never even see the money and have absolutely zero temptation to use it.

The second way, which I use, is to use a savings account that draws money out of your checking account on a set schedule. We’ve got ours setup to take out money each time I get paid (every two weeks) and each time Mrs. FFF gets paid (1st and 15th). If setup correctly, the paycheck goes in and the savings comes out on the same day.

The third way is used only if you can’t setup direct deposit into your savings account or if your savings can’t do automatic draft. You must setup your checking account to make payments to your savings account either through a transfer or by sending a check to deposit. This is usually slower and provides you a few days in which you could “accidentally” spend the money thats in your checking account.

Hopefully this series on savings has been helpful and you can at least implement a part of it. Remember, actually doing one thing is better than planning to do everything but never actually doing anything.

As always, feedback is appreciated. Have you had any experiences with running out of money to save in your budget? Does automatic savings help you meet your savings goals both monthly and over the long term?

The Basics of Saving: Part 2-Goal Oriented Savings

February 1st, 2012

As I wrote in my post last week, The Basics of Savings: Part 1, saving is one of the most important parts of any personal finance strategy-and as with anything to do with finance, attacking it blindly with no plan, while better than nothing, is a poor decision. For this reason I decided to do a series of posts on what I view as three of the most important aspects of saving:

Find a good interest rate
Make your savings goal oriented
Make your savings automatic

Today I’ll be discussing point number 2, making your savings goal oriented.

Goal Oriented Savings

One of our favorite things to do as people is to set goals. Often, these goals are broad overarching goals like not spending as much money, losing weight, reading more, spending more time with the family…you get the idea. Everyone at some point in their life has set some type of goal, either on paper or in your mind. The problem is that our minds love to make dreams for ourselves and the way we would like to be. Unfortunately, these dreams only manifest themselves if there is some sort of strategy in place to achieve them.

Saving is no different. Millions of people start every January setting “goals” of saving more money. This is GREAT…but it takes more-these goals must be defined. Let me give an example:

Goal 1: ”I want to save more money”

Goal 2: ”I want to save more money to go on a vacation”

Goal 3: ”I want to save $100 per month by eating out less for a vacation next June.”

Which goal am I more likely to achieve? Clearly goal 3 because it is defined. So how do I define my goal? I would suggest taking pencil to paper and writing down the time frame for your goal, how much money you will need, how much you need to save each month, and where you will find these savings.

Value Driven Goals

We know how to set and define our goals to make them more achievable, but the next step is to make sure we are setting the right goals. What I believe, and research has shown this to be true, is that most people have a greater chance of succeeding if their goals are directly in line with their values.

By values, I’m referring to what is important to you. If the most important thing to you is that you be financially secure and live knowing you won’t ever have to sell your house and live under a bridge, you may set a goal to establish a large emergency fund. If one of your values is family, you may want to set a goal to take a yearly vacation to spend time with your family. If one of your values is learning and knowledge, set a goal to save for a course at your local university. Whatever it is-make sure your goals align with your values. I guarantee this will increase the likelihood of achieving your goals more than anything else.

Tracking goals

The final step in implementing your savings goals is to find a way to track and assess your progress. One way, and something that I’ve tried and failed at, is to have one savings account where you keep all of your savings for your different goals. Keeping track of the total is easy, but keeping track of how much you have for each goal can get hairy-especially if you are making different levels of contributions to each goal each month. It really gets bad when all that good interest we talked about in Part 1 gets added in. I would not suggest this unless you’ve got time and patience to keep track of every penny in the account including interest gains over the years.

Fortunately, tracking goal oriented savings is an area that has been improved by several convenient types of savings accounts offered. The first I’ll discuss comes from a company that was created just for this purpose-Smarty Pig. The way it works is that you set up individual goals for anything-emergency funds, a trip to Hawaii, or a new pair of shoes-and determine the amount needed and when. It then helps you determine the monthly savings needed and tracks it for you. The neat feature is that it will link with your social networking accounts like Facebook or Twitter to share your progress with friends and even allow others to make contributions to your goals. Not only does the psychological factor of accountability through friends help you out, but there is also an opportunity for friends and family to help you achieve your goal through donations. Though I’ve never used it personally, it does sound like a great system that has worked for many people.

The system that I use for savings is ING Orange Savings accounts. Once you set up the initial account, you can login and easily set up more accounts and give them nicknames for whatever you like. Currently, I’ve got four goal oriented savings accounts: Christmas savings, New Car Fund, Vacation Fund, IRA starter. The Christmas savings account was implemented to save over the year for Christmas expenses rather than taking a large hit every December. My New Car Fund is monthly savings for a new vehicle one of these days to replace my 2003 Ford Explorer. Since it’s paid off, I’m using what I would be paying for a car payment each month and setting it aside for the purchase of a new vehicle whenever that is. The vacation fund is an account to save for a trip to Italy that my wife and I have wanted to take since we got married. Our goal is to take the trip in the summer of 2013. Finally, the IRA starter fund is an account that we just started to save the minimum to start an IRA, most likely through Vanguard.

ING Orange Savings has worked for me but Smarty Pig may be for you if social accountability motivates you. Also, I’m sure there are other ways to easily manage goal oriented savings accounts that have worked for millions of others. What are some ways you’ve managed or tracked financial savings goals? Are there any other strategies that worked? That didn’t work? Remember, comments are always welcome and appreciated.

To summarize, there are three main parts to using goal oriented savings:

Clearly define your goals: how much, when, and for what?
Align your savings goals with your values
Use a system of savings accounts to track and analyze your progress

With these tools, anyone can easily make, track, and achieve their savings goals.

Firstfruits

January 29th, 2012

Pay yourself first?

One of the most common and also most useful pieces of financial advice is to pay yourself first. It refers to allocating money for savings first rather than just relying on yourself to budget correctly and save the leftovers. However, while this is great advice, it needs to taken with the understanding that as Christians, we are only called to be responsible and manage our money AFTER we have given our firstfruits to God, our true source wealth.

Proverbs 3:9-10

Today, in keeping with my goal of posting on God and Money every Sunday, I’d like to take a look at Proverbs 3:9-10:

“9 Honor the Lord with your wealth, with the firstfruits of all your crops; 10 then your barns will be filled to overflowing, and your vats will brim over with new wine.”

This verse seems simple enough at first look: just give the first of any earnings to God and he will bless your barns to overflowing. Let’s look a little deeper at the context and what the author was trying to get across when he wrote this.

The proverb is written by Solomon who was the son of King David. Solomon is the wisest man that ever lived because of the wisdom granted to him by God. Solomon used this wisdom to effectively lead and govern the people of Israel and in the process, accumulated great wealth. I think based on the fact that he was wiser than you or I will ever be, and also had more wealth than most likely you or I will ever have, he has some credibility to speak on the topic of managing wealth.

He addresses this Proverb to his son in helping him understand the benefits of fearing and honoring the Lord. Solomon tells his son in these verses to always honor God with the firstfruits of your crops. Unless you happen to be in the agriculture industry, “crops” in today’s world refers to any and all income. Solomon’s wisdom allowed him to understand that all he had and accumulated was truly a blessing from God and he therefore wanted to honor the Lord by giving back to him first, before spending, saving, investing, or giving any away to any other cause. By giving first, the glory and gratitude is given to God and the giver is recognizing that God is the first priority in his/her life.

This seems easy enough to do when planning in your mind but can sometimes be hard when the mortgage comes due, the credit card bill needs to be paid, you’d like to purchase the latest and greatest gadget, and what do ya know…the hot water heater just went out. Unfortunately, situations like this are all too common and often times make it seem impossible to give the firstfruits of our crop to God.

Despite the fact that it can seem impossible to give first to the Lord, Solomon’s advice to his son is not one sided, but also comes with a promise. He says that IF we honor God with our firstfruits, our “barns will be filled to overflowing, and your vats will brim over with new wine.” Simply put, if you are faithful in giving to God first-before ANYTHING else-God will be faithful in blessing you beyond what you could imagine. In a world in which everyone is looking for any insider tips as to what the next big investment with a great return might be, Solomon gave us the inside track close to 3000 years ago. If we give first to God in the right spirit and recognize him as the true source of all we have, he has promised us that he will continue to bless us more and more. I don’t know about you, but in my experiences, God is ALWAYS faithful to keep his promises.

The Basics of Saving: Part 1

January 25th, 2012

When it comes to personal finance, one of the most basic skills that needs to be acquired is saving. From the time we are kids and on into adult life we are taught to save at least a portion of any income-whether its $1 from your $10 allowance or $10,000 from your $100,000 salary. It’s the thing that everyone knows they SHOULD do, but sadly, it’s often not practiced.

I believe that one of the most important and basic parts of someones financial life should be their savings strategy. While there is much information out there about how much to save, what to do with your savings, and what to use it for, in this 3-part series of posts, I’ll seek to describe what I think are three important aspects of any savings strategy:

Find a good interest rate
Make your savings goal oriented
Make your savings automatic

In this series I want to tell the first steps and what to consider when saving as well as give some practical ideas to implement. Also, I want your feedback as to what has worked for you and what hasn’t. Remember, here at FFF, any and all feeedback is welcome.

Make your savings work for you

The first thing that most people look at when investigating stocks or mutual funds is their return. Also, when people consider financing a home or a car, one of the first questions is the interest rate on a loan. Determining where to put your cash for savings should be no different. Because of the phenomena of compounding interest over time, doing a little research and finding a savings vehicle with a good interest rate can really pay off-to the tune of several thousands of dollars.

The first and easiest option is what I call the mattress savings account. There are millions of branches nationwide and chances are there is more than one ATM inside your house. All you have to do to open an account is lift up the mattress and shove some cash under. Yes I’m joking, but when it comes to savings, this is not far from the truth for millions of Americans. They simply put their money for savings each month into a savings account at their local bank. While this is certainly better than not saving at all, many times the interest rate can be 0.5% or less. The goal today is to find interest rates that can help us to really grow our money.

The next step up is to take your savings and put it in a high interest savings or money market account. These accounts can often give you interest rates up around 1%…not great but better than nothing. When you use one of the savings calculators over at Dinkytown (one of my favorite sites because of the amazing number of different financial calculators), you can see that when saving just $300 a month over 10 years, getting 1% interest versus 0% can make you close to an extra $2000. While that may not seem like much over 10 years, for the one hour of time that it takes to find an online bank with a higher interest rate, it sure is easy money.

Several sites have done a good job of aggregating some of the advertised interest rates for many online savings and money market accounts. Two of my favorites are over at Get Rich Slowly and Christian PF. If the high interest savings is the way you want to save, I highly suggest taking a look at their lists and finding one that you like.

Do you Kasasa?

The final (and best in my opinion) savings vehicle is to utilize a high interest checking account as a savings account. One of the best places that I’ve found to do this is to open an online Kasasa Cash account. Kasasa is a type of banking that pairs with local community banks and credit unions and provides free banking with high interest. There are several types of accounts, found here, that provide benefits such as high interest, cash back on purchases, and even iTunes credit to download music.

Now what you’ve been waiting for–what do you mean when you say high interest? This is where it gets good. On my Kasasa Cash account, I am currently earning 5.01% interest…that’s right, 5.01%. Because the Kasasa accounts are actually given through local banks, the interest rate will vary by location. However, based on what I’ve seen, it will generally be better than most other options.

Lets revisit our example of the saving $300 a month over 10 years. If instead of opening an online high interest savings account at 1% and opted for the Kasasa account at 5%, the difference after 10 years would be just shy of $10,000. $10,000 just for letting the bank hold onto and secure your money!!

One thing that does need to be mentioned is that there are a few requirements in order to draw the high interest (5% in my case). First, the statements must be received paperless through the online website. This shouldn’t be a problem since we won’t need to deal with any paper anyways if we make our savings automatic like we’ll see in Part 3. Second, there must be a least one external transfer into the account each month-another easy requirement since you’ll be setting up automatic transfers already into the account each month. Finally, my Kasasa account requires at least 12 transactions per month. This is the trick that requires a bit of discipline. Since the Kasasa account is actually a checking account, they want you to actually use it to make purchases. What I do is use it twelve times early in the month for small purchases (<$10) so I don’t miss out on too much credit card rewards. That way I’m covered and will generate the high interest on my savings. After the purchases, I then add up the amount spent and transfer that back from my main checking into my Kasasa account.

Whether you are currently saving a great deal or not a single penny, I suggest looking at these options and seeing what is the right type of savings vehicle for you. If you don’t think you are disciplined enough to make 12 small purchases month in and month out, go for one of the lower interest but guaranteed online savings accounts.

Do any of you use either an online savings accounts or a Kasasa account for savings? Have you found any other savings accounts that have worked for you.

True source of Wealth

January 22nd, 2012

The Bible and Money

In keeping with my Christian faith, I want to write a post on Sundays dealing with some aspect of money and the bible. According to Crown Financial Ministries, there are 2,350 verses in the bible relating to money so I shouldn’t be lacking for content. Many of these verses are straight-forward while others are more confusing and up for debate as to their meaning…I’ll do my best to give my opinion based on my personal study of scripture as well as the wisdom of others.

Remember the true source of wealth

This week I’d like to take a look at Deuteronomy 8:10-18, quoted below:

¹⁰ When you have eaten and are satisfied, praise the LORD your God for the good land he has given you. ¹¹ Be careful that you do not forget the LORD your God, failing to observe his commands, his laws and his decrees that I am giving you this day. ¹² Otherwise, when you eat and are satisfied, when you build fine houses and settle down, ¹³ and when your herds and flocks grow large and your silver and gold increase and all you have is multiplied, ¹⁴ then your heart will become proud and you will forget the LORD your God, who brought you out of Egypt, out of the land of slavery. ¹⁵ He led you through the vast and dreadful wilderness, that thirsty and waterless land, with its venomous snakes and scorpions. He brought you water out of hard rock. ¹⁶ He gave you manna to eat in the wilderness, something your ancestors had never known, to humble and test you so that in the end it might go well with you. ¹⁷ You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” ¹⁸ But remember the LORD your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today.

This scripture is the address of Moses to the Israelites when they were camped in Moab shortly before they were to enter the Promised Land. He wanted to make sure they understood that it was God who had brought them through all of the trials so far and he would deliver them into the Promised Land and bless them as he had promised. Moses also understood human nature-that when people accumulate great wealth, they tend to become prideful and forget the source of that wealth.

After reminding the Israelites about all that the Lord had done for them, he hits them with my favorite verse in this passage, verse 18: “But remember the Lord your God, for it is he who gives you the ability to produce wealth.” While these words came from the mouth of Moses to the Israelites thousands of years ago, they are 100% true today. The Lord is indeed the true source of wealth and he blesses us with the ability and wisdom to accumulate wealth. Because of those blessings, it is our responsibility to be sure and glorify God through our wealth by wise management of our money as well as by giving back a portion of that which he has given to us.

While I try my best to remember to thank God and acknowledge him for all I have, I often fail in this regard. Coming back to this verse will help me to remember the true source of wealth.

Another Student Loan?

January 21st, 2012

First Post

So I’ve been thinking about what to make my first post about and wanted to come up with something that told the whole story of what I knew about personal finance-but I realized that this blog is to give bits and pieces of advice that when taken together, will help the average person improve their financial situation and one day achieve true wealth. For that reason, I’ll start with a simple post about something that has come up in our financial life recently.

Surprise Surprise

Both my wife and I recently graduated with Masters degrees. I was blessed to receive a scholarship for my school but my wife,

Mrs. FFF, had a few student loans. We’ve been paying back those loans through www.nelnet.com which is a student loan site that aggregates all of your loans to make it easy to just make one payment on all of them. However, within the past two weeks, we’ve gotten two notifications of other loans, although smaller, that are being collected through different agencies.

In our budget, we have a certain amount allocated for paying off student loans and this included both the minimum payment as well as a fair amount of extra principal. Therefore, we will probably just decrease our extra principal on the others to manage the payment of the new loans…however, I can see how if someone is struggling to make the payment on all their loans, having another loan (or two!) could put you in a bind.

Plan Ahead

Because of the grace period on these loans, the payment is not expected until 6 months to a year after graduation (typical of most student loans). This gives the student what they deem as “plenty of time” to go out and use that hard earned degree to find a job. During the grace period, interest is not charged on the loan which makes it nice for the student, especially if they start paying off the loan. Unfortunately, the bank doesn’t like to remind you of the loan until it comes due because if you start paying the bank back while they aren’t charging interest, they lose money. Therefore, we didn’t find out about the loans until now and have adjusted our budget accordingly.

While it hasn’t turned out to be terribly inconvenient, aside from setting up and accounting for the additional payment, a few minutes of planning could have saved us the surprise of two additional monthly payments popping up while also allowing us to pay back these loans interest free for several months-saving us money.

My advice for any students, or anyone for that matter, is to make sure you research and fully understand the terms of any and all loans. As a student, it can be quite intimidating to know you have upwards of 10 different loans that will have to be paid back someday. You’re just trying to make it though classes, much less worrying about what loans you have and when you have to pay them back. Then you graduate and start working and loans don’t cross your mind–until the banks wants you to.

To avoid this situation, BEFORE you leave campus, make sure you talk with the financial aid office and understand four things about All of your loans:

Name/Address/Phone of Lender
Principal amount borrowed
Interest Rate
Grace Period

Armed with this knowledge you can make a good plan of attack for getting rid of your student loans as quickly as possible.

What about my other loans?

I’ve addressed how to deal with student loans before and after you graduate, but what about the people who have student loans in addition to a mortgage, a car loan (or two), credit card debt, etc?

When it comes to debt, by far the most important thing is to have a strategy. The first step in developing a repayment strategy is to gather the information listed above for student loans about all of your other debt and put it on one page. Seeing all of your debt gives you an appreciation for the battle as well as may inspire you to get serious about attacking your debt.

Second, look at all of your loans and determine what is the MINIMUM payment you must make each month total. Make sure you have that much set aside in your budget.

Third, you must make a decision as to how much extra you want to allocate towards paying off your debt. This will obviously be different based on income but also on the level of sacrifice you are willing to make to get rid of debt and achieve the feeling of financial freedom. Right now I tend to say allocate 10-20% of monthly income to pay off debt-but the more the better. However, if $5 extra is all you can pay–DO IT. Doing something is always better than doing nothing, and depending on your level of debt, it may save you much more in interest.

Finally, set your plan in action by setting up automatic withdrawls from your checking account for each loan. This may take a little time based on the number of loans as well as whether you can log-in and set it up or if a call or mail in form is necessary. However, this time will pay off as automatic withdrawls insure that you won’t forget to make any payments.

I hope this first post is helpful to both students, recent graduates, and anyone trying to gain financial freedom. Has anyone else had similar problems with loans? What did you do to settle the situation? Have you used the strategy of getting all your loan info together and making a payback strategy?