Getting a running head start on the taxes this year, thanks to a new(ish) accountant who sees no good excuse for dawdling. Tax time, is, after all, a-coming in, and really, except for a couple of stray K-1’s from the ex-DH’s various limited partnerships, there’s no reason not to start pulling all this stuff together.
The S-corp’s 2011 tax data, such as it is, can be said to already be pulled. The 1099s have been sent winging toward the folks who help make Funny about Money and The Copyeditor’s Desk possible, and all of the corporate transactions are duly recorded in Quicken’s online incarnation of Quickbooks.
The nice thing about the online Quickbooks is that New Wonder-Accountant can access the corporate books online from her computer, even though she uses a different platform from mine. I’m told the new Mac OS’s don’t support Intuit at all, and so the only other way to coordinate Quicken data with her would be for me to buy an inexpensive PC and load it with a browser and an expensive single program. The online version costs no more (possibly less) than it would cost to buy the program each year at Costco; it’s regularly updated; and she can access it whenever need be.
The S-corp’s 2011 fiscal year marked the beta-trial of QB online for me. I also kept the corporation’s books in an Excel spreadsheet, just in case. But no “in case” seems to have happened. The accountant has already explored the QB site and uttered no squawks of dismay, and so it looks like keeping the company’s books in the Cloud is going to work. It is possible to download the data to disk, by way of making back-ups at one’s own site, so I feel a lot more comfortable about this method than I did last January.
Matter of fact, the first of this month I set up an new online Quickbooks account for my personal bookkeeping, which should go a long way toward simplifying the tax process next year—and, I hope, keeping the costs of tax prep down.
Truly, I hate wrestling with all this stuff. Most of this afternoon was occupied with tracking down data and filling in parts of the 19-page worksheet for my personal taxes that Wonder-Accountant presented to me yesterday. Ugh.
Who knows what any of this stuff means? Though I struggle to keep the records complete, accurate, and transparent, half the time I have no idea what I’m doing and so have no way of knowing whether I’m getting it right. It’s a miserable, incomprehensible, time-consuming job, especially onerous given the inherent unfairness of our tax system.
Plus some of this stuff…well, I just don’t want to be reminded. It would be good, for example, not to have to dwell on how much the most basic healthcare is costing me: in 2011 I spent $6,028 on Medicare Part D, Medigap insurance, long-term care insurance, and dental, vision and medical care that was not covered.
D’you have any idea how much more that is than I used to pay for the same level of care while I had a salary? It’s just phenomenal! Lose your job, lose your income, and the cost of health insurance skyrockets.
That figure doesn’t even count the $111 a month (or so…I’ve lost track) Social Security withholds to cover Medicare Part B.
If I were paying now what I paid for healthcare when I had a job, I could live fairly comfortably in unemployment without having to make like an anchorite. And you know what? When I’ve been sick as a hound dog for something over a month, that is something I really would rather not contemplate.
Especially since my doctors so resent the chintzy reimbursements from Medicare that I can’t even get past their damn gatekeepers, who just brush me off when I call to tell them I’m not getting a whole lot better. Higher cost, lower quality.
Oh well. At least we’re getting an early start on it this year. Maybe, with any luck, entering my personal data in Quickbooks will reduce the amount of work next January and cut the number of hours—and cost—of 2012 tax prep. That’s something. I guess.
How about yourself? Have you started? Have you found a system that makes your taxpaying life any easier?
Unless we’re born with a ton of money, most of us worry about our finances. Even if you’re not struggling to make ends meet, you may wonder if you’ll ever pay off your student loans, ever get out from under credit-card debt, ever own your house free and clear, ever manage to save enough to see you through retirement. Or maybe you’re sick of working but dare not quit your day job. All of these concerns (and more!) add up to one big issue: stress.
Funny is going to do a series on controlling financial stress, since personal finance and stress are part of this site’s theme. Over the next few weeks, here are the stress control strategies we’ll cover (not necessarily in this order):
1. Budgeting to cut worries
2. A frugal shopping mantra
3. Living minimalist
4. Paying off revolving debt
5. Living free of revolving debt
6. Focusing on what matters
7. Living beneath your means
8. Strategic stockpiling
9. Building a second income stream
10. Eating well and saving
11. Simplifying your financial life electronically
12. Paying yourself first
13. Planning for the kids’ education
14. Planning and saving for your own retirement
15. Paying off the house
So, watch this space! Over the next few weeks, Funny will revert to its orgins as a PF blog, becoming a little more finance-ish and a little less personal.
Today I met a sweet and kindly lady in the course of a volunteer project I signed up for. While we were figuring out what we were supposed to be doing, we of course struck up a conversation, during which she came to tell me her life story.
At 60, she’s struggling financially: always “on the edge,” she says, despite holding down a full-time job and juggling three side enterprises. It was not always so.
She was widowed in her 40s. Her husband, retired Air Force, died unexpectedly at 54. He left her an annuity, some savings, and a paid-off house. They had been married for about two decades.
Being a relatively young woman, she soon took up with a new man, one who appeared to be acceptable. They were together for quite a few years.
During that time, this gent took over paying the bills and managing their finances. They owned a business together, and he ran it.
What he really was doing was quietly cleaning her out. We won’t mention the womanizing he was doing on the side, also quietly, because it’s not especially relevant.
Then one day the license plates were stolen off her car. She called the Department of Transportation to get them replaced and was told she couldn’t have new licenses because the car was uninsured. This was news to her. She became so confused in the bureaucratic maze that her S.O. offered to take over and get the job done for her. She gratefully agreed.
He told her he needed a power of attorney so he could represent her with ADOT. She agreed to give him one, signed and notarized.
He sallied forth and did battle with the bureaucracy, eventually returning with new license plates.
Time passed; she didn’t think much more about it.
Then the day came when their relationship started to dissolve. That’s when she discovered that he’d used the power of attorney to take out a second mortgage against her paid-off home, to the tune of tens of thousands of dollars. Having convinced the credit union manager that she was sick, incapacitated, and needed money to pay medical and skilled nursing bills, he’d drained her bank accounts and taken pretty much everything she had, except for the small annuity and modest savings in a 401(k).
He’d spent it all on his chippies, leaving her in poverty.
And, as it developed, there wasn’t a damn thing she could do about it. Because she had given him a power of attorney, she had authorized him to do as he pleased. The police and the state attorney general told her no crime had been committed—or at least, not one that could be prosecuted. She did not pursue him in civil court because she believed he had no money, and she certainly couldn’t afford lawyers’ fees for a suit that would return nothing.
She’s still trying to pay off the loan against the house, which is now worth less than she paid for it. She came close to losing the house, because she didn’t know the loan existed until the payments were far in arrears.
She expects to work to the age of 70 to maximize her Social Security benefit. But she doesn’t have a nickel or a dime, and at the rate she’s going, she never will.
No one should ever let somebody else control their finances—even communal finances—without oversight. I think this is more common with women than with men, at least in my generation. But I know of men whose finances were similarly drained by designing women. Even in these more enlightened times, I’ll hear 20-something women students remark that they don’t understand money and don’t want to—it’s too, too boring.
Well, get bored, laydeez and even yents. A little tedium is a heckuva lot better than spending your old age in penury.
Sometimes I wonder just how smart it is to self-escrow funds to cover various large bills, such as homeowner’s insurance, property tax, and car insurance, and to sequester funds for emergencies. It could be that getting carried away with this strategy gives you too many cookie jars cluttering the financial countertop and two little in your main pot o’gold to maintain a lifestyle that you really could afford. Maybe.
Yesterday I was pondering how to get through the period when no paychecks are coming in: half of May and all of June. Next time the college pays me will be July 14.
This penurious period occurs, of course, just as utility bills are running up to their max—though we’ve been lucky this year with the weather. Right now, at five in the morning, it’s an incredible 62 degrees out there. It’s almost never that cool at this time of year. Still, I have had to run the air conditioning off and on, and so we can expect a bracing bill to arrive on the desk pretty quick. That, and the Mayo sent a bill for almost $400; apparently Medicare and Medigap covered rather little of the routine physical I got there a couple of months ago. And the Dog Chariot’s oil leak is getting worse—that’ll be another $200 or $300, not counting the $350 for a new timing belt. Plus the hateful palm trees have to be trimmed: yet another $350.
Anyway, while I was studying sources of funds to cover these expenses, it occurred to me that in fact I have more than enough cash in the bank to cover them. The problem is, most of it is dedicated to specific purposes. Videlicet:
Jeez. That feels like a ton of money to me. Maybe instead of having these funds scattered in four accounts (there’s also the joint account with M’hijito to cover the mortgage payments), maybe all the money should be piled in one account, from which all expenses are paid and the devil take the hindmost.
This would have the dual advantages of making me feel a lot less broke and of massively decomplicating bookkeeping.
On the other hand, it would also have the huge disadvantage of making me feel a lot less broke. Whenever I feel flush, I tend to think I can afford this little luxury and that little unnecessity. I would be buying clothes and furnishings and expensive take-out meals right and left if I thought I had 16 grand at my easy disposal.
The $9,300 in long-term living expenses is the relict of the $20,000 of incidental savings that was loafing in the bank at the time I was laid off the job. Since last fall, I’ve been drawing it down to live on, supplementing Social Security with enough to make ends meet during the times when no teaching income happens and in fact making it possible for me to dedicate all my net teaching pay to building up a large cushion in the joint mortgage-payment fund. At a spending rate of about $1090 a month, that fund will last until almost the end of 2013, at which time I’ll have to start taking drawdowns from retirement savings. That assumes that I’ll replenish it at the end of this summer with about $3,000 from unused teaching income, with about $2,500 from the final RASL payment that comes in next spring, and with 2012 and 2013 income tax refunds comparable to what came in last April. At any rate, sooner or later that fund will go away.
The tax and insurance fund is a manifestation of raw fear: I’m scared to death of not having enough to cover the property tax and homeowner’s insurance on my house. The apparent $2064 in available “daily living expenses” funds is an aspect of the same heebie-jeebies: $1,000 of that is reserved as a “cushion” to cover accidental overdrafts and emergency expenses; so really, only $1,064 is available to cover June expenses. That will jump by a thousand bucks when the Social Security check arrives…but not until mid-June.
The diddle-it-away fund is accrued at the rate of $200 a month and is dedicated to such things as clothing and little decorator items for the house. In fact, that’s where the money to pay for those car repairs will have to come from. As you can see, one truly major hit in the car repair department would do that little savings account in, which is one reason I’m thinking I should draw down some money from a brokerage account and buy a new vehicle. But I suppose that can be delayed until the major hit actually happens. The Sienna is almost worthless now, and so waiting until it doesn’t run anymore won’t make much difference in what I’ll have to pay for a new car.
But…what if I just paid these expenses out of one large fund until that fund disappeared, and then started drawing down enough from the IRAs and brokerage accounts to live on? Wouldn’t the result be the same as covering costs out of funds that are dedicated for living expenses, for small indulgences and small emergencies, and for tax and insurance? Wouldn’t life then be a great deal simpler?
I don’t know. Really, experience shows that, at least casa mia, spending expands to fill all available funds. If I didn’t have a clear vision of how much really had to be exempted from routine spending to cover taxes and insurance, I could easily blow that money at Pier One, Willams-Sonoma, and J. Jill. I would quickly go through the diddle-it-away savings, imagining that there was always at least a couple hundred bucks sitting around to spend on “wants,” not just “needs.”
But still. It is a nuisance. And having only enough in the month-to-month living expenses account to just cover the costs of running the house, buying groceries, and running the car does make me feel like I live on the edge of penury at all times.
That may not be a bad thing. When I can no longer teach, the fact is that the amount I can safely draw down from savings will, when combined with Social Security, just barely cover living expenses. Without the teaching income, drawdowns not only will have to cover my living expenses, they also will have to pay my portion of the mortgage. If I get used to living better now, having to pull back at that time, when medical bills will be even higher than they are now (they easily exceed the 7.5% of gross income required to make them tax deductible, and there’s nothing yet wrong with my health!), is likely to be very uncomfortable.
Better to stay accustomed to living very frugally because I imagine I don’t have enough than to hit a brick wall when the time comes that I really won’t have enough. That’s the reasoning, anyway.
At any rate, things are about to get a lot better, at least for the nonce.
Thanks to the two summer courses I managed to score, enough cash will flow in to cover base living expenses this summer. Last summer, I simply did not have enough to pay the bills without biting deeply into savings. This year, all that has changed.
Moving fall 2010 and spring 2011 teaching income into the joint mortgage-paying account, combined with negotiating a lower payment, created enough of a cushion in that cookie jar to cover an entire year of payments. Should anything happen to one of us, the other one will have plenty of time to figure out how to cope.
So, I can quit over-funding that account. This summer, none of the teaching income will go toward the mortgage, and in the fall, instead of moving everything I earn over there, I’ll start paying only my portion of the monthly mortgage bills, which is less than teaching pays (when it’s paying).
That will leave a little of each paycheck in my checking account. While it’s not a lot, it’s still enough to make things a lot less tight. And one month’s pay will handily cover the mortgage costs for the December-January winter break, when again no teaching money will be coming in.
This assumes no increase in teaching income—a safe assumption, since aduncts never get pay increases. Not bad, considering that thanks to increases in Medicare and Medigap premiums, my regular nondiscretionary bills have gone up by $194 a month.
If I put that extra money from teaching (net after paying the mortgage) into the long-term survival cookie jar, I could extend the life of the survival fund by about six and a half months (assuming I get the same number of courses next year as I’ve had this year). That would delay drawdowns from retirement savings well into 2013.
After that cookie jar is empty, if I’m still teaching I could use the extra teaching money to minimize the amount I’ll have to draw down from savings.
On the other hand… In 2013, I’ll be almost 70 years old. Not likely I’ll still be able to continue teaching then. I might make it through 2014, but it’s a long shot. The college doesn’t need to hire long-in-the-tooth retirees to staff its comp courses, given the hordes of unemployable English Ph.D.’s littering the landscape. Nor, probably, will I still be competent to ride herd on packs of 19-year-olds.
So, when I consider whether I could just use the extra money from teaching to engineer a slightly more generous lifestyle, I come right back to this hard fact: when the job ends, I’ll have to go back to living like an anchorite.
And if I’ve accustomed myself to a more generous lifestyle, that won’t be easy.
The cookie jars, in that light, serve a purpose: they ensure that I don’t get used to living in a style I can’t afford for long.
The state direct-deposited the $4450 it owes me for this year’s installment on my RASL (retiree unpaid sick-leave). Very nice…but what to do with it?
I’d figured to put $2500 of it in the Roth IRA and invest the rest in the brokerage account. This would plump up my retirement savings by another few thousand bucks. On the other hand…
I’m already in retirement. What we have here is a chunk of post-tax money in an era when income from Social Security and teaching doesn’t cover all my expenses. Right now I’m drawing down post-tax savings at the rate of $1093 a month to ensure that ends will be met, come what may. This left me, at the end of February when utility costs were nil, with a surplus of a grandiose $181, after all the bills were paid and transfers made to the savings accounts that hold funds for taxes, insurance, and extravagances like clothing and shoes.
Since I’m already having to draw down de facto savings (just not out of investment accounts—yet), does it make sense to invest this money only to have to start drawing it back out of the investment accounts in another few months? Just now, my projections show I’ll run out of after-tax savings in September, assuming I use my summer-school pay to cover utility bills and then spend the remainder on trash like a new washer and dryer or a new crown to replace the broken one. Videlicet:
Suppose, though, I were to fold the RASL into the survival fund and do the same with the post-utility bill net summer pay? Let’s imagine, too, that a miracle happens and I get another two courses next summer, netting three grand after the high-season utilities are paid:
This has a sterling advantage: it allows me to live on post-tax savings, minimizing 2011 and 2012 tax bills while my IRAs and brokerage accounts continue to grow (assuming any growth is left after the Libya unrest settles down—a big assumption, for you can be sure whoever takes control will not be our friends). This year, I do need to roll the pre-tax money out of the defunct whole life policy into the brokerage account; so far only post-tax funds have been withdrawn from that. It’s earning all of 1 percent (at best) at Northwestern, and so needs to be transferred to investment accounts, which have been averaging 5 to 7 percent the past few months. That need grows urgent, as inflation is about to spike, big-time. Living on money in savings will reduce my tax liability for that rollover.
The second strategy will require me to defer the dental crown indefinitely, and also to try to fix the ancient washer or to replace the washer only, not the dryer. I will not be able to use summer earnings to cover those needs, nor could I start stashing summer pay to save toward a new car, which I’ll be needing one of these days. Soon.
Of course, there’s no guarantee that I’ll get two sections to teach in the summer of 2012. But even if that doesn’t happen, I could in theory hang on until the end of July without having to draw down from investment savings.
Recently Money Beagle put up a post ruminating about whether his bookkeeping system, which entails subtracting earmarked funds against net worth, is maybe a shade on the overcomplicated side. I’ve been thinking the same thing about my own baroque shekel-counting schemes: this stuff is getting out of hand! As one of MB’s readers remarked, it may be time to apply the KISS principal: Keep It Simple, Stupid.
Bank accounts grow like topsy around this place. Right now I have four personal bank accounts, a joint checking account with M’hijito, a business checking account, and a PayPal account for the business. To keep track of credit-card charges, I use yet another spreadsheet. Then there are the spreadsheets for the budget: one for monthly nondiscretionary expenses and one for discretionary spending. Taken together, these little fellows have spawned eight spreadsheets for me to keep up-to-date.
These were relatively easy to handle in Quicken, because Quicken links accounts so that when you make a transfer from one to another it will automatically register the transaction in both accounts, and because it’s very easy to reconcile an account in Quicken. But now that I’m keeping my books in Excel, reconciliation is an old-fashioned headache, and transfers require me to manually debit one account and credit the other. It doesn’t sound like much extra work, but when you have to do it, you find it’s easy to lose track of stuff. One already has enough pains in the tuchus in one’s life without having to deal with some more.
How to decomplicate this?
Well…unclear.
In the first place, at the time I was laid off, I had a $14,000 emergency fund, which I stashed in my checking account and used as a “cushion,” ensuring I would never overdraw the account and eliminating the need to keep track of it someplace else. Since the market had crashed with a resounding thud, I really didn’t want to invest this money, because I was afraid of losing even more than the $180,000 that had already gone down the toilet.
After a difficult year of trying to live without pulling down anything from the remnants of my life savings, the market has pretty well recovered and savings are nearing their former state of normalcy.
So, in the fall I let my financial manager know I could not continue to live on less income than my base expenses and I would have to start taking a drawdown from investments. He suggested that instead of incurring a taxable event each month, I should use the after-tax money in the emergency fund, since in reality there’s plenty of money in taxable savings to cover emergencies. So I’ve been using about $1,100 a month of that 14 grand to supplement Social Security, providing enough to pay the bills before the unpredictable and unreliable pay from adjunct teaching comes in. To manage this, I opened a tiered money-market checking account to hold the amount remaining from the original 14 grand; from that I disburse the $1,100 to regular checking once a month. I figure this fund will be exhausted by September.
Adjunct teaching pay has to go to cover the mortgage on the downtown house. My initial plan was to transfer only enough to cover my share of each month’s payment to M’hijito’s and my joint checking account, which exists to hold cash for the mortgage. To keep from diddling it away on daily expenses, I started stashing teaching income in the money market account. Obviously, though, to keep track of those two items—the fund I was now depleting for living expenses and the money for the mortgage—and ensure I didn’t accidentally spend some of one fund on the other purpose, I needed another spreadsheet, one that would keep track of the mortgage payment fund. Now we’re up to nine spreadsheets. Make that ten: there’s one tracking investments, too.
Then something over $11,000 came in from the insurance company to cover hail damage. This money had to be carefully sequestered, because if I diddled it away there wouldn’t be enough to pay the swarms of workmen. Reluctant to open yet another account, I stashed it in the money market account, along with the mortgage fund and the dwindling cost-of-living fund. This added to the potential for confusion exponentially, requiring yet another spreadsheet.
Meanwhile, the bank account holding the self-escrows for annual tax and insurance payments (I have to set aside $325 a month to cover property tax, car insurance, and homeowner’s insurance) also held the summer stipend I got for developing the online course last year. The summer money would, I hope, carry me through what I expected would be four months in 2010 with less income than outgo (it devolved into five months, but that’s another story). There’s now just enough summer money left (if my arithmetic is right) to cover half the cost of the new pair of prescription glasses.
Okay. That’s the “system” as it stands. Is there a way to decomplicate this system?
Now that we have a permanent loan modification, it’s clear that the amount I’m earning during the academic year will more than cover a full year’s mortgage payments. The departmental chair has assigned me two sections to teach next summer, the proceeds of which will be gravy.
So, New Plan #1: transfer 100% of September-May teaching income to the joint account as it comes in. Let M’hijito figure out how to allocate it, with his share, to cover the mortgage. Use the summer pay (June-August) to cover the extraordinarily high costs of living in Arizona during a 115-degree summer, and, for a change, actually run the air-conditioning when typing on a keyboard will raise a sweat.
New Plan #2: At the end of each month, transfer any money left from that month’s income into the savings account for discretionary spending.
These two strategies will hugely plump up monthly savings, which is used for things like clothing, car maintenance and repair, and house repairs. In the winter, there’s often $100 or so left; in the summer, a fair amount should remain from the teaching income—possibly enough to add up to around $3,000, plenty to buy clothes, keep the aged car running, and cover small emergencies.
Decomplicating benefits: Moving all academic-year teaching income directly into joint checking eliminates the need to keep track of how much of the money-market account’s balance should be held aside for the mortgage. That takes one moving target off the field. Transferring whatever remains in checking at the end of each month allows me to see, at a glance, what’s in savings to cover unplanned expenses.
Once the glasses are paid for, all that will remain in the Tax & Insurance account will be dedicated fully to paying tax and insurance. This will decomplicate another spreadsheet; here, too, the bottom line will show how much is available to cover those exorbitant costs.
And once the bills for the roof, the new air conditioner, and the exterior painting are paid, all that will remain in the money market account is the balance of the survival savings. When that’s depleted, the money market account can be closed. w00t! A whole spreadsheet gone!
By the end of the summer, here’s how I expect this to look:
Still complicated, but at least it shouldn’t take 10 spreadsheets to keep track of it.
Speaking of those spreadsheets, why do I need ten of the damn things? Right now I have two workbooks, one tracking cash flow (in all those bank accounts!) and credit-card charges and one tracking the budget, along with various schemes, projections, and retrospective summaries. Why am I doing this?
I think I’ll collapse these into a single workbook, leaving all the fevered calculations in a separate file. This will allow at least allow me to move back and forth between cash flow and the budget, rather than keeping two files open in Excel to enter routine transactions. This will reduce the number of pages where I regularly enter numbers from sixteen to five. That is, from these (some of which have been defunct for over a year!)…
to this:
And that, I suppose, is as close to minimalist as I’m gunna get.
