I was bored at lunch the other day, so I estimated/calculated our 2008 tax liability (I literally completed all the forms by hand, in pencil with estimated numbers, using the 2006 tax tables and contribution/deduction limits.) The end result was that Mike and I will owe the IRS some money in spring of 2009 if we don't make some adjustments to withholding now... of course this depends on the following:
1) Income for both of us remains flat - unlikely, as we both work places with annual cost-of-living raises and additional increases available for performance
2) Pre-tax deductions remaining flat - again unlikely, as health insurance always goes up at least a little bit and I always increase Mike's 401K deferral at the beginning of the year, and again in April when his raise goes into effect. I probably should do the same for my IRA contributions.
3) We don't have a baby in 2008 - may or may not happen. We're going to start trying to get pregnant in early 2008. Realistically, we'll probaby have a 2009 baby if we don't hit a home run in the first couple of months of the year.
4) Tax rates remain the same - who knows, this is up to Congress. The tables should remain pretty constant, however, the amount for IRA deductions should go up, and the personal exemption amounts usually increase a little as well.
Based on my number crunching, with no changes, we will owe around $400. In order to change that I either need to have $400 more withheld from our paychecks for federal withholding OR we need to make about $1500 less for taxable income. I don't like the idea of additional withholding - I'm already being withheld as single with no exemptions. Mike is withheld as married with 2 exemptions. That describes our tax situation. I don't want to give Uncle Sam more of my money.
Which leaves me with making less taxable income. Conveniently, I can decrease our taxable income by saving more for retirement. I went out an increased Mike's 401K deferral another percentage this morning. That extra bump means another 600 a year will be tax exempt. Which leaves me with another $900 to decrease the income by - I'm thinking I have no choice but to increase my IRA contributions (which is conveniently in line with my goals anyway.)
All things considered, I'm rather impressed with my ability to save an additional $1500 for retirement for the year in order to avoid paying $400 in taxes. It almost makes me wonder if they set the system up like that on purpose to make my generation be responsible for our own retirements since social security likely won't exist for us. And even if that is the case, most of my generation missed the memo, because they'd decide to just pay the extra $400 in taxes and spend the remaining $1100 on themselves today.
Friday, September 21, 2007
Tuesday, September 11, 2007
Ready for the rebound
I've been patiently biding my time since July, trying not to freak about the losses to our portfolio. Our gains went from a 15% return for the year to less than 1% in one day. Needless to say, there isn't much you can do but grab your backside and hang on. Now that things have started to stabilize *knock on wood* and we are back to a 6% return for the year, I'm breathing a lot easier, and beginning to sleep again. Apparently, I am getting more risk-adverse as I get older. Five years ago, I would never have blinked at the downturn.
Analytically, I understand there are ups and downs, and that being invested for long term growth means you sometimes have to deal with the downs along the way. Emotionally, it's a different section of the bookstore. There is something gut-wrenching about watching a 401K go from $56K to $43K in the space of a few hours - and being helpless to do anything about it. By the time I realized there was a major market slide, I was simply along for the ride, no matter where it took us.
By August, I'd started reminding myself that this is really good for us in the long term (after all, everything I'm buying now at a low price has no where to go but up, right?) I even moved my monthly purchase week at Sharebuilder up to the second week of the month, instead of the third (because I was going to time the markets and they'd been down almost a month... so if I waited longer they'd be rising again - look how well that bit of logic worked. NOT.)
Now I worry about things like recession, and the bursting housing bubble, and what that means for my own assets and security. I feel poor. I fear for the future of the country's economy. Although, I'm not quite ready to start re-using aluminum foil or rinsing out ziploc bags yet. I just have this sinking feeling things will get worse, before they start to get better.
That whole thing about rising tides lifting all ships... it works both ways (except during the last recession I was blissfully unaware that my personal financial boat was even moving... I was on the party barge, with the keg and the reggae music and I was happy there.)
Analytically, I understand there are ups and downs, and that being invested for long term growth means you sometimes have to deal with the downs along the way. Emotionally, it's a different section of the bookstore. There is something gut-wrenching about watching a 401K go from $56K to $43K in the space of a few hours - and being helpless to do anything about it. By the time I realized there was a major market slide, I was simply along for the ride, no matter where it took us.
By August, I'd started reminding myself that this is really good for us in the long term (after all, everything I'm buying now at a low price has no where to go but up, right?) I even moved my monthly purchase week at Sharebuilder up to the second week of the month, instead of the third (because I was going to time the markets and they'd been down almost a month... so if I waited longer they'd be rising again - look how well that bit of logic worked. NOT.)
Now I worry about things like recession, and the bursting housing bubble, and what that means for my own assets and security. I feel poor. I fear for the future of the country's economy. Although, I'm not quite ready to start re-using aluminum foil or rinsing out ziploc bags yet. I just have this sinking feeling things will get worse, before they start to get better.
That whole thing about rising tides lifting all ships... it works both ways (except during the last recession I was blissfully unaware that my personal financial boat was even moving... I was on the party barge, with the keg and the reggae music and I was happy there.)
Slaying the demons of debt one nickel at a time
Thanks to last Friday's bonus, $32 more was paid on my student loans today. Take that Great Lakes Higher Education beast! You will die... hopefully before I lose hope in ever paying you off. It would have been much more satisfying if the whole amount could go to principal, but they always apply it to accrued interest first. The regular payment was due on the 5th, and between then and today they have accrued $12.04 in interest. So at least the total should go down by almost $20.
Billpay sent the extra check to my Roth for $32 yesterday, but the brokerage always takes about a week to get the check and cash it. It will be a while before that money makes it to its new home.
I'm going to send the remaining $32.25 to my citi card sometime in the next week or so, to offset the expenses I'm sure I'll incur when I get to Rolla, MO in October. I sort of feel like I should hang on to the money in savings and earn interest on it, rather than let the CC hold it for me interest-free, but I know myself. Once the money hits the savings account, it becomes earmarked for DR, and I'll be rather tight-fisted when it comes time to send it to pay the CC bill in October.
Billpay sent the extra check to my Roth for $32 yesterday, but the brokerage always takes about a week to get the check and cash it. It will be a while before that money makes it to its new home.
I'm going to send the remaining $32.25 to my citi card sometime in the next week or so, to offset the expenses I'm sure I'll incur when I get to Rolla, MO in October. I sort of feel like I should hang on to the money in savings and earn interest on it, rather than let the CC hold it for me interest-free, but I know myself. Once the money hits the savings account, it becomes earmarked for DR, and I'll be rather tight-fisted when it comes time to send it to pay the CC bill in October.
Friday, September 7, 2007
TGIF
I know its been a short week but its been up and down. I'm exhausted and ready to crash for the next two days (if only I truly had the ability to indulge in that luxury.) I've busted butt, settled a couple of cases, done some work on some hourly cases and actually felt like I made progress towards billing my first 50K in fees for the firm (which is relevant because when I hit that benchmark I get a raise.)
I have a check on my desk for $96.25 for a fee split bonus from work. This is from the same source as the last $60 bonus. I'll be good and put 1/3 towards my IRA and another 1/3 to my student loans. That last 1/3 that should go to saving for DR in 2010 will probably end up getting spent next month. My sorority chapter's 35th anniversary is next month and I'm going back for the party. It would be nice to be able to take a couple friends out for drinks and not feel guilty, so I'm thinking that would be a good use for this money.
It looks like these small bonuses will become a regular occurence, provided we stay a provider with the pre-paid legal services plan that I got our firm hooked up with several months ago. My boss thinks it's great - this is a source of clients that never would have come to us before, as they have legal services available as an employee benefit, but to use those services they have to go to a provider under that benefit plan. The clients call in, they get what they need, and we get guaranteed payment for providing services to them (and no pulling teeth to get the client to cut the check to pay for those services.) The rates are a little lower than normal for some services, but it's made up for with the lack of hassle in billing for those services. Ray liked the initiative I took in getting us signed up so much that he's giving me 25% of what the firm receives for these clients. Which is pretty slick as far as I'm concerned.
My normal fee split arrangement is 1/3 for what I business bring in. This is essentially people who know me and want to have a will done, or people who want me to do their bankruptcy (as I'm the only attorney in the firm who works in this practice area.) Since the prepaid legal clients don't know me, and most of them don't need bankruptcy services, they wouldn't normally qualify me to get a fee split at all. So I'm making a little extra money by doing something that I only did because it would help bring in some extra bankruptcy customers down the road.
As long as I don't count on the money it remains a bonus, even if it is likely to get paid twice a month when the legal plan cuts checks to the firm. So this is a bright spot in my Friday and helps me continue on the road to debt freedom. I've promised myself I will continue to put 1/3 of each check to retirement, 1/3 to student loans and the remaining 1/3 will be spent flexibly or saved for DR depending on what I've got going on at the time.
I have a check on my desk for $96.25 for a fee split bonus from work. This is from the same source as the last $60 bonus. I'll be good and put 1/3 towards my IRA and another 1/3 to my student loans. That last 1/3 that should go to saving for DR in 2010 will probably end up getting spent next month. My sorority chapter's 35th anniversary is next month and I'm going back for the party. It would be nice to be able to take a couple friends out for drinks and not feel guilty, so I'm thinking that would be a good use for this money.
It looks like these small bonuses will become a regular occurence, provided we stay a provider with the pre-paid legal services plan that I got our firm hooked up with several months ago. My boss thinks it's great - this is a source of clients that never would have come to us before, as they have legal services available as an employee benefit, but to use those services they have to go to a provider under that benefit plan. The clients call in, they get what they need, and we get guaranteed payment for providing services to them (and no pulling teeth to get the client to cut the check to pay for those services.) The rates are a little lower than normal for some services, but it's made up for with the lack of hassle in billing for those services. Ray liked the initiative I took in getting us signed up so much that he's giving me 25% of what the firm receives for these clients. Which is pretty slick as far as I'm concerned.
My normal fee split arrangement is 1/3 for what I business bring in. This is essentially people who know me and want to have a will done, or people who want me to do their bankruptcy (as I'm the only attorney in the firm who works in this practice area.) Since the prepaid legal clients don't know me, and most of them don't need bankruptcy services, they wouldn't normally qualify me to get a fee split at all. So I'm making a little extra money by doing something that I only did because it would help bring in some extra bankruptcy customers down the road.
As long as I don't count on the money it remains a bonus, even if it is likely to get paid twice a month when the legal plan cuts checks to the firm. So this is a bright spot in my Friday and helps me continue on the road to debt freedom. I've promised myself I will continue to put 1/3 of each check to retirement, 1/3 to student loans and the remaining 1/3 will be spent flexibly or saved for DR depending on what I've got going on at the time.
Wednesday, September 5, 2007
Estate Planning is SOOO depressing
We signed our wills this morning. It only took six and a half years of marriage to finally face the need for these important documents. We also took care of power of attorney for healthcare as well, so now Mike can pull the plug on me, if needed. We don't really have much that the wills cover. Most of our "assets" are the kind with a beneficiary designation that controls over the will. The only time that our wills could be important is if we die at the same time and our life insurance and retirement accounts end up getting paid into the estate instead of directly to the surviving spouse - and let me me tell you, if we die at the same time, my godsons and cousins are gonna have one heck of a party with that life insurance.
Facing one's own mortality at 8:30 in the morning puts a damper on the rest of the day. Signing the wills seemed so permanent, like admitting that you'll never live forever, no matter how indestructible you feel. Not at all like getting life insurance was... that seemed like "a just in case the unspeakable occurs" action. The wills felt like admitting defeat.
Life insurance is another important factor in the road to financial security - we don't have kids yet, but that is planned for sometime in the fairly near future. It's a heck of a lot easier to get a 20 year term policy for a decent price when you are still under 30. Mike's got 100K of term, plus another 500K from work, and we also have a 20K whole life policy on him as well. Which will leave me well positioned as I can pay off the debts and then continue working - if I ever decide to be a SAHM, we'll need to increase his coverage, but that is highly unlikely. Since graduating law school in December we've beefed up my coverage as well. I've got 600K of term, plus the 20K whole life policy. Unfortunately, my employer doesn't have group life insurance coverage, so I actually have to pay market premiums for my insurance. But I'm still under $50 a month for all the coverage we carry on me, so it seems well worth it.
Facing one's own mortality at 8:30 in the morning puts a damper on the rest of the day. Signing the wills seemed so permanent, like admitting that you'll never live forever, no matter how indestructible you feel. Not at all like getting life insurance was... that seemed like "a just in case the unspeakable occurs" action. The wills felt like admitting defeat.
Life insurance is another important factor in the road to financial security - we don't have kids yet, but that is planned for sometime in the fairly near future. It's a heck of a lot easier to get a 20 year term policy for a decent price when you are still under 30. Mike's got 100K of term, plus another 500K from work, and we also have a 20K whole life policy on him as well. Which will leave me well positioned as I can pay off the debts and then continue working - if I ever decide to be a SAHM, we'll need to increase his coverage, but that is highly unlikely. Since graduating law school in December we've beefed up my coverage as well. I've got 600K of term, plus the 20K whole life policy. Unfortunately, my employer doesn't have group life insurance coverage, so I actually have to pay market premiums for my insurance. But I'm still under $50 a month for all the coverage we carry on me, so it seems well worth it.
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