photo credit: fotograf1v2

Glancing at the calendar, I notice that almost half of the month has disappeared in a pile of other people’s tax documents. The brain is just a little crispy right now…

Which is not to say that little has gotten done with our debt destruction progress. Actually, all of a sudden our future debt reports have gotten incredible simple. Not that they were all that complicated to begin with, but by the end of this month, the report would consist of a single line containing our mortgage balance.

That’s right. As of sometime next week, when our medical bill shows up and we write out one more check, we could call up Dave and shout WE’RE DEBT FREE! Well, except for the mortgage, which Dave seems OK with. Which always felt a bit disingenuous to me, when most people’s biggest debt is an oversized mortgage, but that’s a whole ‘nother post.

So, how did we kill off $27k+ in a single month? More awesome side job income? Nah. I didn’t tap those funds at all. Just letting those stockpile up for the time being for next year’s tax bill. Instead, we finally got rid of my father’s gift, which covered the loans taken out against it along with leaving a few thousand extra to work with. We plan to kill off the last of our medical and use the rest as an initial boost to a real emergency fund. OK, and we may blow just a bit of it celebrating.

Anyway, enough prattling on. Let’s take a peak at what is probably the final State of the Debt report:

So what’s ahead?

The State of the Debt reports are probably done. Seems a bit boring to report something like ‘Yep, made another mortgage payment.’ I fully intend to accelerate paying that mortgage off as quickly as possible, but a monthly report on that progress? Eh. Maybe in passing I’ll mention milestones, but really, I’ll have to see if I can come up with something a little funner to point out…

Like I alluded to, a real emergency fund, in the neighborhood of six to twelve months of expenses. Haven’t sat down to ponder the exact level, but somewhere in there. Our miniature one has come in handy when stumbling blocks appeared along this path, but having something substantial in place should a more extreme emergency make an appearance definitely would be a good idea. Plus, having that to fall back on gives you freedom to take advantage of opportunities you’d otherwise be hesitant to consider otherwise.

More life simplification. In my free time (in other words, not in the last six weeks or so) I’ve been reading quite a bit on life hacking. Think along the lines of books such as:

• Margin by Swenson
• Your Money or Your Life By Dominguez & Robin
• The 80/20 Principle by Koch
• The Myth of Multitasking by Crenshaw

Like too many people anymore, I spend far too much time doing things that add far too little to my life, and far too little on the things that actually do.

I will be correcting that imbalance.

So it looks like we’re in collapse and people are killing each other in the streets. Oh, wait, no, not really.

Sure, the markets are having a fit, which makes it painful to look at our retirement accounts. Except that we aren’t planning on touching them for many years, so eh. Feel a little bad for the baby boomers inching up on retirement, but really, not much. Yes, I know that schadenfreude isn’t exactly a positive emotion or anything, but many of them have defined their lives by excess so they shouldn’t be surprised when it comes around to bite ‘em. A little frugality isn’t perhaps a terrible thing.

photo credit: missdesigndiva

Meanwhile our politicians are tripping over themselves trying to do, well, I don’t really know. Looks like they are hellbent on trying to find a way to spend my son’s future income in an effort to stave off what will be an admittedly painful correction. Personally, being a free market kind of guy, I say go ahead and let it correct. But I am probably missing the big picture.

That said, at least in our household, things are certainly not flying off track. In fact, despite the supposed tightening of the credit market, we just received notice that one of our credit cards has substantially increased it’s limit. Thanks, but we really don’t need it. We won’t mention that to the government, because they may just decide they need that as well!

We did a decent job of killing off more debt this month. Broke well past the $1000 mark. And honestly are still living quite comfortably even with that kind of progress. We could probably introduce a little more pain and get the ball rolling a little faster. But that’s a budgeting issue, not a reporting one.

I’ve been having a lot of fun recently with my side business, and it’s beginning to really take off. Right now it is not adding any to our debt attack plan, as I am stockpiling cash right now in anticipation of further expansion. The holidays are rapidly approaching, and I have a feeling I’ll be spending a fair amount on advertising soon!

Oh, and oops, I will take a cue from Wall Street and restate some debt. I misread a medical bill statement and understated that debt by around $800. Where’s my bailout?

photo credit: StreetFly JZ

As expected, we suffered a little setback in debt reduction progress this month when a batch of medical bills arrived. And just as expected, there is no such thing as a cheap medical procedure, so of course we maxed out my wife’s portion of the deductible. Since the deductible on the plan I get through work is fairly high, well, likewise our final bill.

The first obvious lesson is that going without health insurance in this day and age is a sure route to financial ruin. I’m not thrilled with a fairly large bill, but it could have been far larger had we been without coverage!

And since health insurance was forefront in our minds, the wife and I decided to do a little comparison shopping to see what it would cost to get a decent policy on our own. One with perhaps a better deductible. Maybe look into a HSA to get a little tax advantage. That sort of thing.

We used the health coverage comparison engine at eHealthInsurance to look into a pretty broad range of policies. One things was obvious from the get go: we could — assuming we qualify for the plans, of course — get health insurance for a heck of a lot cheaper than what my employer is currently paying on us. Especially after an upcoming rate increase goes into effect.

I broached the subject of dropping us from the group coverage and instead getting a salary increase on par with the plan’s premium with my employer, and he certainly didn’t rule the idea out. So yesterday we submitted an application to see if we could qualify for one of the mid-range plans that meets our needs, halves our deductible(!), and qualifies as an HSA plan to boot.

Anyway, enough rambling for today. On to the raw numbers:

Personal finance is really a pretty basic topic. For most people, money and what to do with it is just not that complicated:

• Spend less than you make.
• Put aside 10/15%+ for retirement.
• Don’t use a credit card, or if you do, at least don’t keep a balance on it.
• Pay off your debts as quickly as possible.

Well, unless you bought a house in an area where the market is now melting down. The luster is off that house with a rapidly adjusting ARM worth 70% of what you paid 2 years ago. Likewise that $100,000+ masters degree in philosophy that allows you to eek out a living on $30,000 a year.

Still, there seems to be two groups who argue that paying extra on their mortgage or student loans debts is not for them, even if they can afford it:

“I’m Saving a Ton On My Taxes”

But wait… isn’t there a tax benefit with those two types of debt?

Oh, sure, if you think sending the bank $10,000 in mortgage interest to save $2,500 is a smart move. That’s assuming you would itemize without the mortgage anyway. If you are like most, and the only reason you qualify to itemize is because of mortgage interest, the ‘savings’ is likely much less. Personally, we don’t see any advantage at all because we won’t itemize either way.

At least with a student loan interest, there is a tax benefit (but with the same trade-my-dollar-for-your-quarter nonsense) irregardless of whether you itemize or not. Unless, that is, you are single and make more than $50,000 ($100,000 if married) when you begin to get rapidly phased out of the deduction. But the real problem to me is: are you really fine paying on money, albeit borrowed at an ultra cheap rate of 2-4%, for a degree you earned 30 years ago, in a field you might not have worked in for 15 of those years? Long after which, the tax benefit becomes almost nil, as the deduction based on student loan interest paid, not on student loan payment?

“I Earn More by Not Paying My Debt”

With the low interest rate on those debts, isn’t the money I have better spent increasing my investments than decreasing those debts? And won’t paying the debt off with the earnings from those investments be quicker than directly paying them down?

Possibly.

The ultra-cheap student loan is a bit easier: a investment returning 5.34% pre-tax beats a 4% loan (by all of .005% , but it does beat it). Short-term investments are still a little iffy (but certainly not out of the question), but long-term should really be a no-brainer.

So at least over the long-term, financially it may make a sense to invest what you would otherwise prepay.

Not In Either Camp

Neither argument works for me.

The tax dodge route is, I’m sorry, just stupid. Paying a buck to get a quarter back makes you a moron. I don’t care if it brings your cost to borrow down to 1%; it’s still debt that you can do something about but you chose not to.

Using available funds for investing rather than debt repayment at least makes a bit of financial logic, though I think most who follow this route overestimate the potential returns and, more importantly, underestimate potential risks. Of course, the argument assumes one actually invests what would otherwise go to prepaying rather than just ratcheting up consumption. Or that one would use that future money to pay off that debt rather than, oh, buying a nice shiny new Lexus. There are some out there that are that disciplined, and god bless ya’… but I have a sneaky suspicion that most are not.

Nevertheless, we won’t be following the ‘logical’ route either. Probably because I don’t see debt the same way proponents of either method see it. To me, there is no distinction between good and bad debt. Debt is debt – an obligation to pay something to someone. What the debt was taken on for initially is really immaterial, and the quicker I can get it out of my life, the better.

Now that all your paychecks so far this year have gone to the government, it’s time to finally get earning for yourself.

Despite my desire to focus most of our attention on debt reduction, that doesn’t mean other aspects of our finances can be entirely pushed to the wayside. Certain areas just need a bit of consideration to keep things going along as smoothly as possible. Plus, now that I finally have a little time to contemplate anything other than numbers, what better time to think about a few more of them?

If you are tracking the performance of your investments, you’ll notice that the separate portions of your portfolio like, for instance, your US Large Cap and your Emerging Market Micro Cap sections aren’t necessarily moving in the same direction, in the same amount, all the time. (Hopefully so anyway, or you’ve got a bit of diversification to do.) Over time, these disparities can cause one or more areas of the portfolio to be overweighted while leaving other areas underweighted. Which is just another way of saying that you’re taking on more or less risk than you desired when you set up your portfolio. So a little reallocating of funds between the different classes becomes necessary.

There are three general styles of portfolio rebalancing that I’ve stumbled upon:

• Rebalance periodically – Whether annually, biannually, monthly(!) or whatever arbitrary time frame chosen, you pick some date and decide “that day is the day to rebalance.” And when that day arrives, do so. Then put a reminder in your date book for that next arbitrary date in the future to do it all over again.
• Rebalance when a your allocation is off by a particular percent – Pick an arbitrary percentage off your ideal portfolio, and decide “this is how far off perfect my allocation must be for me to rebalance“. And when some portion of your portfolio hits that percentage, rebalance.
• Rebalance when you feel a the market is heading in a particular direction – Give the separate areas of your portfolio a range of allocations – i.e. 20-40% Large Cap Value, 30-50% Small Cap, etc., etc. – and based on how you view the market, you allocate somewhere in that range when you feel that the market is about to change.

The first method is just too arbitrary for me. Too short a time between rebalancing and “if it ain’t broken, don’t fix it” would apply – and you’d needless be incurring transaction fees. Too long a time period and things get too far out of whack, and the portfolio would no longer reflect the level of risk one is comfortable taking. The problem is, there is no perfect time frame; the market just doesn’t move at a steady pace.

Method three, well, that’s just a market timing play. Which, to a me, is just shy of gambling without any of the fun (ala sharing a few good cigars and drinks with friends). I generally believe in the efficient market theory, though I probably lean more towards weak-form efficiency than strong-form. Either way, market timing doesn’t sit in either ends of that spectrum.

Which leaves method two, the route I take – it personally makes the most logical sense. The Large Cap Value portion of our overall portfolio has been creeping away from ideal for some time now, and is finally enough off that the time to take some of the gains in the winners and stock up on the beaten down has arrived.

And so now the fun begins: deciding if the investments we are in are the most appropriate, and, if not, with what to replace them. Changes at the broker I use – namely, no more free mutual fund trades – initiated some looking around before the rebalance trigger hit, and I actually stumbled across an interesting group of prospective investments that I may let run for a bit.

Possibly by this afternoon, if it stays quiet here, I’ll have our new portfolio. I’ll even throw it up here, just to see if anyone has an opinion or two on my choices….

Three days late, but I’ve finally finished ours…

I wasn’t too concerned about the April 17th deadline, since I had a pretty solid grasp on where we stood and knew we’d be getting at least a small refund. Our state refund was right where I thought it’d be, but in the end our federal was almost triple what I thought it was going to be.

You see, I forgot about something, though it shouldn’t have been far from my mind since almost every client had a photocopied news article or printed out email about it included with the paperwork they brought in: the telephone excise tax refund.

In the end, the state will be dropping a cool Hamilton back into our account in a week or two while we’ll get $78 back from the Feds when I was only expecting $25.

Quite the windfall, huh? I’ll have to try not to spend it all in one place…

And just like that, it ends.

Outside of the (relatively) few extensions that we always have to file, Tax Season 2007 has come to an end.

And while there was that undertone of barely controlled mania that is always there during tax season, this year was somehow more, well, laid back than I remember in years past — the last couple days in particular were very low key. I’m going to attribute a good chunk of that to the fact that most people probably didn’t realize they had until the 17th to file this year. So last Friday and Saturday were our ‘if the phones ring one more time I’m gonna disconnect it‘ days, and Monday & Tuesday was all stragglers and the hardcore last minute filers (who will file at the last possible moment given the chance).

And working as a tax accountant, I’ve got to offer a sentiment that I’m sure very few non-tax accountants would share: I’m going to miss it, and am already looking forward to next year’s tax season…

There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government. – Benjamin Franklin

I’m not sure what’s up this year, but I believe I’ve heard the query, “But can’t I just write that off as a business expense?” more times this season than I ever have before.

In other words, no, you cannot write off part of your remodeling bill because of your home office when you, well, don’t even have a home office…

Yes, I’m still alive, just buried in Tax Season 2007. Oh, that and having my home PC die a slow death has kept me offline at home. Which considering the hours I’m putting in, is probably a good thing, as it means I must socialize with the family those few hours a day I’m away from my clients…

Now, don’t get me wrong, I love my clients. They allow me to feed and clothe and house myself and the family. And allow us to be good Americans and consume away. Most of them are a joy to work with, and even consider more than a few to be friends. But there always is a handful that, well, I swear they are trying to drive me crazy. Here’s a few ways you too can drive your tax preparer insane:

1. Insist on setting an appointment as soon as humanly possible. Then, during the interview, letting us know that several W2s, 1099s, etc. you are expecting haven’t arrived yet. We love keeping track of all of your bits of paper here at the office as you round the rest of them up.
2. Reassure us that you have provided us with everything germane, and to go ahead and file your return. Over the next few days/weeks/months, make several trips to our office bringing in forgotten 1099s for all your savings accounts, 1098s for the kids, etc. Reassure us with each trip that ‘That should be everything…‘
3. After we’ve eFiled your return, call every day or two complaining that your refund hasn’t shown up in your checking account yet. Despite the fact that we gave you an approximate date to expect it to arrive. And despite the fact that it’s several days before that date.
4. Bring in a bankers box or two filled with every single piece of paper that has a number on it that crossed your desk for the year. Even better if you just toss ‘em in there as they arrive throughout the year without even taking a peek at the contents — and then complain how you keep missing all those bills and how all these companies need to figure out a better way to bill.
5. Do the above, and then call daily – or heck, twice daily – checking on ‘How’s it going?‘ Despite the fact that we’ve told you more than once that, unless you are a farmer, we won’t be looking at your info before March 1st.

Well, that’s a start at least. It’s early in the season. I’m sure I’ll be able to add a few more before the season ends…

[tags]taxes, accountant,tax preparation,annoyances, 1099, 1098[/tags]