Monthly Archives: February 2013

The false thrill of big tax returns

I don’t know about you, fellow Savers, but I’ve been waist-deep in tax returns for the past week and haven’t felt much like writing about finances outside of that.

I used to love doing taxes and would even volunteer to do my friends’ taxes, years ago. That, of course, was when mine (and theirs) were relatively simple. No one itemized deductions or had investments or kids. That’s all changed. And ever since I had to throw international rental income into the mix, I’ve hated doing taxes. Oh, and did I mention that I do a SECOND set of taxes every year, in the fall? UK taxes for my husband for said international income. I’ve been doing those taxes for over 5 years and I’m STILL not sure I’m doing them right.

As for my U.S. taxes, I had an accountant do them for two years. This year I decided to do them myself to save a few hundred bucks, but it was a scary undertaking with all the new things in play in our financial life. And whatever I couldn’t get e-filed for free, I did manually to save even more money. That added a layer of pressure. So yeah, I don’t see them as the fun choose-your-own-adventure game that I did when I was a feckless youth.

Another reason I used to love doing taxes was to see what kind of refund I got. It was like winning the lottery! Free money! A bonus out of nowhere! I’d blow it on something exciting and that would be that until the next year.

That was until I created a budget. And started thinking about paying off my debt. And started thinking about my future.

Then, I read in a few places that the refund you get after filing your tax return is just the government paying back an interest-free loan that you let them borrow. They got to play with money that was rightfully mine, and they didn’t pay me anything to keep it.

Meanwhile, I was carrying credit card debt with interest rates as high as 21%! I certainly wasn’t getting an interest-free loan from anyone.

Once I made that connection, I started tinkering with withholdings, so that I got a little more money in my paychecks but virtually no refund the next year.

Sure, you have to be careful you don’t go too far and owe a ton, because both the federal and state governments will impose a penalty if you owe more than a certain amount. And no, I don’t get that visceral thrill of coming to the end of the TaxACT questionnaire and seeing my refund add up.

I was actually reminded how cool that can feel this year. We got quite a bit back because of credits we qualified for with our new baby. I enjoyed the frisson of delight while telling my family how much we were getting. Then I decided to put the entire amount toward student loan debt. Then I set about using the IRS calculator to figure out how to adjust our withholdings so that this year, we get a little bit of that money each month, and can start putting it toward debt right away.

It’s one of the financial matters I feel pretty strongly about. If you use your refund to pay off a big chunk of interest-bearing debt, you should just adjust withholdings and pay down that debt each month. You’ll save a few bucks in interest.

If you use the refund to go on an indulgent vacation, you should adjust withholdings and use that extra money in your account to start a savings account just for vacations. Whether you earn a small amount of interest (going rates at online banks are only about 1% right now) or sign up for a bonus (many banks will give you one if you set up direct deposit into savings and keep the account open for a certain amount of months), either way you’re getting SOME extra money to put toward that vacation that you wouldn’t have if you’d let Uncle Sam borrow it for a year.

If you struggle to put 10% of your income toward retirement savings, adjust your withholding and set up an automatic debit into an IRA, or up your 401(k) contributions. (That would even ease your tax burden a bit for the next year, since 401(k)s reduce your taxable income.)

A lot of otherwise pretty savvy financial people I know stil go for that big refund; they just can’t let go of that thrill. But for me, if I got another refund of thousands of dollars next year after learning what we’re entitled to this year, I’d just feel like sucker, letting my old burnout pal Sam sleep on my sofa for a year without paying rent.





Image courtesy of Stuart Miles /

My budgeting technique revealed!

As I discussed earlier, a budget can take many forms. Today I’m going to share my method of budgeting, which I’ve used for the past few years.  It won’t be for everyone, but even if it doesn’t work for you, I hope it gives you some ideas to build your own system.

I developed this system gradually. For many years the only system I used was the registry in my checkbook. I would religiously check my account balance by phone or online and make sure I had entered everything correctly. That helped me see what I’d been doing, and to see how much my current balance was. But it didn’t help me plan or manage my spending, and I gradually realized why.

It didn’t give me any information about upcoming expenses, about whether I would have enough money in the bank for upcoming purchases before payday, about how much (if any) money I was free to spend without screwing up future payments on necessary bills.

So I started playing with budget plans that worked FORWARD from the existing checking account balance, rather than recording past purchases and ending with the current balance. I’ve called it many things, in my mind and out loud: budget, number crunch, ledger. But at the recent League meeting I came up with a term I really like: future checkbook. Think about if you took your checkbook, recorded all the expected upcoming bills and purchases, and the predicted resulting balance after each one. Then, as each purchase occurred, you erased it so you knew it was dealt with. Thus, the only items in your checkbook would be things you still had to deal with.

Instead of estimating whether you had enough money to cover bills, you’d know just how much money would be in your checking account after each bill hit. If you felt there would be too little left over, you could put off some discretionary purchases, move a bill back a few days, or deposit some money into the bank. You could plan in advance so you wouldn’t be scrambling at the last minute or, even worse, dealing with overdraft or insufficient-fund charges.

So here’s what my “future checkbook” looks like (all numbers and many items have been made up, for my privacy and your comfort). It’s an Excel spreadsheet I keep in Google Drive, so that I can access it from wherever I am.

Future Checkbook 3


What do you think? Make sense? Every day or couple of days, I check my checking account, enter the new balance at the top, delete any transactions that have come in, and make sure the ending balance is the same as when I edited it. (I make sure my last line is $20.00, which makes it easier to see if I’ve entered and deleted everything correctly, but you don’t have to if you just make a note of the ending balance before you start messing with your spreadsheet.)

I’m sure you’re full of questions, such as, “Yeah, but what do you do once 3/31/2013 gets here and you have no more entries in your spreadsheet?” and “What if a magazine I forgot about automatically renews my subscription and the money comes out of my checking account but isn’t accounted for in my spreadsheet?” and “But I don’t buy Xmas presents each month or go on a trip every month, so what do I do when I get to that line item?” or “Why are you such a nerd?” (Hey, that’s mean!)

I can explain more of the techniques I use to keep my budget in line. It’s kind of like a bonsai tree that I tend and prune and add little improvements to. So ask away! Or, if you want to just enter your numbers into a spreadsheet like this and see how your budget looks; stay tuned for a tutorial on how to set one up!


Quiz: Do you need a budget? (Oh, and what’s a budget?)

Before I start posting a bunch of screenshots, tutorials and budgeting tool reviews, I should probably start at the very beginning. What is a budget and do you even need one?

One of the attendees at Sunday’s meeting doesn’t use a formal budget at all. Her financial management tactic is simple: Keep a balance of at least $500 in the checking account. If it falls below that, stop spending on unnecessary things until it’s back up.

I’m endlessly impressed by naturally frugal people, because I’ve struggled to control my own spending pretty much my whole adult life. The whole “spend less than you make” philosophy, which is at the core of getting along in a money-based society, somehow didn’t register fully when I was younger.

But through talking with people and through my online community that I frequent (, I’ve encountered those paragons of thrift who don’t need a budget, because they find it easy to do everything they need to without it.

So, if you’re unsure you actually need to change your current financial process, here’s a quick quiz:

1. Do you generally seem to have money left in your account at the end of each pay period?
2. Are you contributing a healthy amount (10-15% of your income) to a target-date retirement fund such as a 401(k) or IRA?
3. Are you in a position where you’re not creating any new debt (loans, credit card)?
4. If you do use a credit card, do you pay off at least the amount that you spend on it each month?

5. Do you find it easy to live within your means, without sacrificing health, nutrition, comfort or happiness?
6. If you share finances with anyone else, are you in accord about how your money is allocated or spent?

If you answered “Yes” to all of the above, congratulations! Your present financial picture is pretty much in balance. You may want to take a closer look to see if there are tweaks or refinements you could make, but you probably don’t need to track your budget daily or worry too much about where your money is going.

If you answered “no” to any of the questions, you’re in good company. A few short years ago, ALL of my answers would have been “no.” But there’s hope, too. Today I can say “yes” to every single one of those questions. (Well, the one about whether it’s easy to live within my means, that depends on what day you ask me. But I find it possible to live within my means, and that’s enough to make me happy.)

So if you didn’t have a perfect score of “yesses,” the first thing you want to do in your financial life is assess your income and spending and create a budget.

OK, so say you’ve taken my quiz and decided you need one, for the first time in your life. What is a budget?

Basically, it’s any organized way to track the money coming in and going out. Your fixed bills are pretty easy to figure out, but there are “variable spending” areas as well. Usually you control this by by dividing variable spending into categories and putting a limit on the amount you can spend in each.

Your budget could be on a post-it note, in a notebook, in a Word doc or spreadsheet, or in a more sophisticated budget system online or on your hard drive. It could be something you tinker with constantly (ahem) or something you set up and only check on every few months to make sure your actual spending is in line with your intended budget.

It can have as many or as few categories as you like, depending on how closely you want to monitor your spending on certain items. It can be designed to have $0 left over at the end of the month, so that every penny is allocated, or you can have money left over. The one thing you don’t want is for there to be a negative balance, (i.e., credit card or overdraft charges you can’t pay back, or bounced checks or insufficient-balance fees).

Over the next few days (or weeks), I’ll detail several different methods of budgeting so you can choose the one that you think best suits your lifestyle and mindset.

First meeting wrap-up

I held my first in-person financial discussion group this past Sunday. I was very excited to bring my musings out of the online world and into real life, but I wasn’t sure what to expect at all. I’d only set a very general topic of discussing budgeting.

In the weeks leading up, I tried to prepare a couple different things I could discuss. I signed up for, a free personal finance management site, to see if I could recommend it. (It turned out to be not for me, but I probably would recommend it for certain circumstances. More on that later, perhaps.) I mocked up fake versions of my two main budgeting spreadsheets (yes, there are others! I’m Google Drive-crazy) and printed them out. I even made up a little quiz in case we needed an icebreaker or something to get us started (we didn’t, so maybe I’ll share that later).

Sunday was a snowy day, so several of the invitees were unable to attend. But our small and hardy group had a fruitful discussion anyway. Much to my surprise and delight, some pulled out laptops and shared their own budgeting systems. Sometimes I feel like I’m the only person in my social circle who uses such tools, but I think that’s just a symptom of people not really being open about their financial lives. It was really fascinating to see how many great, functional ways there are to think about and control your money. (I mean, I knew many methods existed, but I’d never seen them brought to life by actual people before.)

Anyway, the main focus was on demonstrating our various budgeting tools and answering questions about them, but we also touched on several areas that I think deserve further exploration: how to handle money if you share finances with someone; how to keep grocery shopping under control moneywise; how to “trick” yourself into saving more; the pros and cons of owning vs. renting a home; and how to handle an unexpected windfall such as an inheritance.

But first, I’ll work on discussing various budgeting tools, starting with my own system. As soon as I can get some good screenshots together, I’ll do so! Hopefully I can also share the other systems that were demonstrated at the meeting.

We mentioned April as a good time to meet again, so stay tuned for a wrap-up of the next meeting. Between now and then, I have lots of ideas, both things I’ve come up with myself and things that came out of the discussion group, that I’ll share as I find time to write about them.