Tax Comparison

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Tax time has come and gone, thankfully. I wouldn’t say that I dread it.  Since I plan accordingly for it throughout the previous year, it usually is a non-event.  It is more of a time annoyance than anything else.  I did receive a small refund from both the federal and state governments.  What is more interesting to me, is comparing the return this year with my returns from previous years, and looking at the tax return as a window into my financial year.  I know complete surprise from the numbers guy.


It was not my best year ever, but it was close, 2014 was the best. Looking at the wages line on my federal return, does not quite tell the whole story.  The reason for this is all of my health benefits and 401k contributions are removed from my wages and only the net number is reported.  On a gross basis, I had total wages of $110,425 between my salary and performance bonus.  2014 was slightly higher at $114,750 due to a larger performance bonus that year.  My salary was higher in 2015 by almost $2,000, but couldn’t overcome the really good bonus in 2014.  My health benefits were about $1,600 lower in 2015 from switching to a high-deductible plan.  Since I am always planning, I’ve already estimated my 2016 taxes.  I still won’t catch the 2014 year in terms of gross wages, but I’ll be a lot closer, only $675 short.  I’m moving in the right direction.

Interest and Dividends

The taxable interest is driven by our cash reserves, though the comparison between 2014 and 2015 is a little misleading. My savings grew in 2015, but the interest comparison doesn’t show it.  In 2014, I took advantage of some bank offers and opened a couple of accounts for bonuses, about $250 in total which were reported as interest.  So, the $306 versus $145 doesn’t look quite as good.  The dividend story is quite different.  Since I have been growing my Vanguard account with diligent monthly contributions, the dividend numbers bear that out.  In 2014 the total was $324 and in 2015 it was $382.  Certainly nothing that I am going to retire on tomorrow, but it does show the progress I have been making in growing the Vanguard account.

Itemized Deductions

Since I have a mortgage, I itemize my deductions rather than taking the standard deduction. My 2015 number was down when compared with 2014.  That is a good thing.  The reason for the decline is that I am no longer paying PMI on my mortgage.  I refinanced in the beginning of 2015 and was able to secure a mortgage without PMI.  That means I had a lower mortgage payment, but a slightly higher taxable income.  My best year for deductions was in 2012 when I had over $37,000 worth of deductions.  The combination of a mortgage with PMI and medical bills allowed me to dramatically lower my taxable income that year.  I’m quite happy not having those deductions.


My total tax bill was little changed from the previous year, $5,207 in 2014 versus $5,424 in 2015.  My refund was much lower in 2015 compared with 2014, $277 versus $1,430.  I adjusted my paycheck so that less tax would be withheld and my paycheck would be larger.  There are some that like the forced savings that come from getting a large refund every year.  I am not one of them, 2014 being an anomaly.  I have become more diligent about my tax planning as the years have gone on.  My estimation for my 2016 taxes is a tiny refund of only $79, with the state refund only being in the $150 range.  It is fun to me too look back and see how my income and tax has changed over the years.  I began detailed tracking of it back in 2008, more or less when I became serious about my finances.  It’s nice to see the growth over the years.  What insights did you glean from looking at your return from last year versus this year?

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The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Whenever I have budget surprises, they normally aren’t the happy kind.  They usually mean something has been more expensive than I anticipated or there was an unexpected expense.  This time is different however.  There is going to be a surprise source of income.

My wife will start bringing in an income starting in September.  She will be providing childcare for someone 5 days a week.  She will be earning between $1,000 and $1,400 dollars a month depending upon the number of days she watches the baby.  Since I don’t count on her for any income, this certainly will be bonus income.

What to do?

The easy answer to this question would be to save it all.  Though it would not be easy to convince my wife this is the best course of action.  So, I need to balance saving some of the extra income with the need to enjoy some if it too.  What I did was to think of the income in two different buckets, a monthly cash flow bucket and a bonus bucket.

Monthly Cash Flow

In terms of the monthly cash flow, my first thought was to give both my wife and I a raise in our monthly allowances.  A $50 bump for each of us felt like a reasonable number.

One of the next items on the list is to increase my 401k contribution by 1%.  Since I never seem to be able to do this when I receive my annual raise, this is a great time to do it.

Next, I am going to add an additional $100 a month to the mortgage payment to pay that down even faster.  I view this as a kind of forced savings as well and one that would be awfully hard to withdraw.  It is a long-term benefit, which I won’t see for 20 years, but it sure will be nice when I’m mortgage free.

The next item will be to create a padding account in savings.  Since the childcare will only be done during the school year, that leaves about a 2-month period with no income.  I don’t want to have to readjust my budget for those 2 months.  So, I’ll reserve enough to cover the increased mortgage payment, 401k increase and allowance increases for those 2 months.

Bonus Bucket

Whatever is left after the monthly cash flow withdrawals I will treat it like I would my normal performances bonuses and spread it out in my various savings categories.

My first thought was to pad my emergency fund a bit more.  I have about $5,000 in straight cash right now.  Don’t worry that’s not the extent of my emergency fund, just the cash portion.  I would like to get that up to about $8,000.

Next up was topping off the Disney vacation fund as it looks like we are heading there next year.  I only need another $2,400 to have that at $10,000.  If it turns out I don’t need that much for the trip, I will probably just use whatever is left for any other trips we take.

The general trip category will receive a little under $2,000.  This is about what I put there with my bonus earlier this year.  This will fund any trips we want to take in 2017.

Next up are the house and capital improvement funds, both would get a $1,000.  Last on the list is the YMCA membership.  We set aside money in savings every year to fund the monthly dues.  I’ll do this ahead of time instead of waiting for the bonus next year.

Bonus as a Bonus

I was able to sell my wife on this approach by saying that should I be fortunate again next year and receive a performance bonus; we would be able to use it for whatever we want.  My wife and I have been discussing what to do with our deck on the back of the house.  She would like to turn it into a screened-in porch.  I am ok with that, but was guessing the cost to do so would be in the $5,000 to $10,000 range.  By using the extra money as a bonus, we can use the bonus to fund bigger projects, like a screened-in porch.

Any income surprises for you recently?

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Positive Aspects of Using Credit Cards

When credit cards were first introduced they were not seen in anything other than a positive light. They were convenient of course and did away with the need to carry too much cash. These days all the advantages of convenience remain and those who ”trade” online could not really operate without one. However they are also a cause for concern because of the level of debt that many Americans have built up for themselves. It is not a card’s fault as such because companies have not forced users to spend to their limits but it has been so tempting and remains so.

The average American debt on credit cards is over $6,000 but if the group who pay off their balances routinely at the end of the month are taken out, the debt leaps to over $,000. That is the real downside of cards and if users were to accept one word of advice it would be to get rid of this expensive debt by taking out a cheaper personal loan and pay balances off.

Credit cards do have a particularly positive side if used properly. You will need to do your research to get the best deals but if you do you can actually earn money or more accurately make considerable savings.


Those who have avoided problems with cards often have the opportunity to take on new cards and get rewards for signing up. Those rewards can be used in the future in a number of ways but if you are required to spend a minimum amount to get the rewards you need to think whether you will do that without spending on things you don’t need. Of course even if you will spend the required amount the benefit of rewards is negated by the interest you will be charged in spending and not paying off your statement amounts in full. Whether you keep the card beyond the short term should depend on the fees involved. Sometimes there are incentives for doing so such a free night in a hotel which is effectively worth more than the re-signing fee being requested.

It is always worth remembering that there are rewards available without actually owning a credit card of course.

Credit Score Impact

It is important to consider the impact of cancelling a credit card on your credit score. If you do so your debt-credit ration changes for the worse because your potential credit is reduced. It is better to maintain a card but perhaps switch to one offered by the same company but not requiring an annual fee if you see no advantage in the current card. The credit score also considers the age of existing accounts with long term accounts that have been run well a real positive.

At times you may be able to negotiate waiving the fee; it depends how much the card company values your business.

If you want to have multiple credit cards it will give you availability to quite a lot of credit; the danger is using too much of it. If you are sensible your credit score will be enhanced as long as your credit-debt ration remains good. It makes sense to think about reward programs to see whether there is real value. If the choice is 2% cash back or rewards whose value is less take the cash back as an example.

It is too easy to get into trouble with cards and the evidence is in the statistics published on a regular basis. There is an argument that the lessons of the recession have not been learnt. There appears to be a fairly complacent attitude towards debt that the recession should have banished. Even though consumer confidence has returned and the signs in the economy are generally positive it is difficult to justify credit card debt. It is expensive and frankly a waste. Where there are chances to benefit from using a card then fine. It takes some research to really take full advantage but it is time well spent. Sadly it appears that many Americans have become trapped by their cards rather than being able to take advantage of promotions and benefits as they come along.

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How to Manage Money: The 5 Vital Keys!

Knowing how to manage money is an essential thing in a society gifted in consumption. I share in this article five practical ways to manage your money. If you’ve already had difficult ends of the month, then you know how important it is to know how to manage your money. I gathered for you the best keys to financial management.

  1. Learn to say no!

It’s amazing how we all have many needs that we are unable to meet. We must therefore learn to say “no” to things that we are sure will hit our finances hard and prevent us from achieving our main goals.

  1. Have a budget!

The budget is important and essential for anyone trying to learn ‘how to manage money.” Indeed, it is the foundation for the efficient management of finances.

Your budget allows you to have a clear idea of what you earn and what you spend or have to spend. It allows you to have your feet on the ground and prevents you from embarking on costly adventures.

One important thing: it is one thing to set a budget. But the most important part is to respect it.

  1. Educate your family

Effective money management cannot be done without the involvement of everyone. Educate your children about your values regarding money. Teach them to save energy. Teach them how to manage finances. By sharing your values and priorities with members of your family, it will be easier to establish a reliable family budget – and to follow it.

  1. Save each month

You cannot find out how to manage your money, while ignoring the importance of savings. Your savings keeps you safe even when you face the unexpected (job loss, illness, accidents, etc.). Take the good habit of saving money every month.

  1. Pay cash – Avoid consumer credits

If you’re like most people, you probably make the mistake of getting consumer credits. These kinds of loans are pulling you down. When you want to pay for consumer goods, make the effort to always pay cash. If necessary, save money until you get the money for the purchase of your property. This saves you from paying interest and charges.

  1. Earn less to work less

Today, we must work more and more, just to pay the costs of our work. You have to pay the car that you use to go to work. You have to pay the ready-made meals. You have to pay professionals to tinker at your place. You have to pay the nurse who keeps the kids while you are at work, etc.

What I suggest is to look for alternatives to jointly reduce costs and work time, while living a more fulfilling life. Working less means taking time to live! But working less is also earning less. And yes! So we will try to reduce spending, to give us the power to reduce our working time, and without negatively impacting our quality of life.

To conclude

Managing Money is essential to ensure financial security. Learn to say no! Set a budget! Share your values and priorities with your family. Save regularly and avoid debts and credits, and save with coupons especially for consumer goods. Do you have other tips on how to manage money? These are not exhaustive!

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Learning the Right Lesson From Debt

Debt is a terrible thing to weigh down your life financial plan, but it’s possible to learn from debt a great lesson. Living beneath your means is an essential part of good personal finance living, but it’s something that’s not often taught or practiced in the United States. If you’ve failed to live beneath your means in the past, it’s important to start doing so now. That’s a great goal, but I’m sorry to say, if you’ve got a lot of debt, you’ve got to live even farther below your means than you would otherwise.

We’re talking about real frugality here. If you’ve been living off of borrowing for some time now, this might not be a mode that is natural to you. But it’s necessary if you want to turn the tide on your debt. Let’s start by understanding what you’re up against. Lots of people think about their loans only as monthly payments. If you can afford the $300 a month for that car payment, then it means the car is affordable, right?

Not really. This is a trick that low level lenders tend to play on their customers. It’s not a trick, really, but it is often used to prey on people who don’t know the first thing about personal finance. Most readers will probably know what APR is, but to review for those who might not, it’s a combination of interest and fees that a lender charges you to buy, and it’s just as important as the principle when trying to figure out if a loan is for you. Interest is the extra money a lender makes from lending money to you, and the fees are whatever else they decide to (or legally can) charge you extra for funding your loan. Lots of people get set up with loans that are much too expensive in the long run, sometimes paying thousands of dollars more than the product or service is actually worth.

If you find yourself with one or more loans weighing you down, it’s time to go for the old fashioned snowball method. This has worked for a lot of people, and it’ll work for you too if you stick with it. Start by paying all the minimum balances of your loans, then set your sights on the balance of your lowest loan. Pay everything you can spare, or a high scheduled amount, to kill off this loan. When it is done, add that monthly payment and the minimum payment from the former loan, and add them to the money you are paying for the second highest loan.

Making this work will require you to find extra money somewhere. This may mean working extra hours or doing without certain things in life that cost you extra money. These sacrifices are hard, but they’re essential for people trying to eliminate debt and start building wealth. But the suffering isn’t in vain. When you have to fight hard to get your financial life in order, you’re learning the value of money. The pain you feel now will pay off when it gives you the respect for money that it takes not to go into debt unnecessarily.

Of course, there are good loans to take on. Mortgage loans, auto loans, student loans, and other kinds of essential loans are affordable and part of a balanced financial life. With a credit check (in the UK it’s instant), you can find out just how affordably these loans can be issued to you. Just don’t take on more than you can handle, and pay attention to both the principle and the APR.

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The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

The stock market has always amused me.  One day the world is apparently caving in, the next day everything is rainbows and butterflies.  I keep track of my 401K balance relatively often, more so to keep an accurate net worth number, not to see my rate of return.  Market gyrations do not change my investment plan.  My asset allocation is based on my risk tolerance and daily or monthly fluctuations are not going to change it.  I thought I would give you a peak into how my 401K has done over a 12 month time frame at monthly intervals as well as how it did during the Brexit volatility.

Monthly Ups and Downs

I went back and looked at the last 12 monthly statements from my 401K.  I was only interested in the change in market value, not the ending balance.  The ending balance would have been impacted by my contributions, so I wanted to look at only what happened relative to the market.

To give context, my 401K balance at the beginning of the first month was $64,252.  The first month was September 2015 and it was not a good month for the market.  I had market returns of -$2,125.  My usual quip when I see numbers like this is “Guess I’m not retiring tomorrow”.  I guess the world was caving in that month.  Now, had I adjusted my investments or pulled completely out of the stock market, I would have missed out on the butterfly parade the following month.

October 2015 was a good month; I had market gains of $4,223.  November was basically unchanged at up $7.  That’s not a typo, my market gains were only $7.  The world was again falling apart in December and January with losses of -$1747 and -$3,931, respectively.

In February 2016, I guess everyone was shell-shocked from the previous 2 months as my return was down slightly at -$65.

The butterfly parade returned over the next 3 months as I had returns of $4,808, $1,063 and $926 for the March 2016 through May 2016 time frame.  June 2016 was uneventful with market losses of $59.

Happy days returned again for the last 2 months with gains of $3,084 and $336 for July and August.

My ending balance at the end of August was $88,859.  I kept steady in my investing and was able to enjoy the good months, while also purchasing more shares during the bad months.

That’s the beauty of dollar-cost-averaging.  Five of the twelve months had negative returns for a total loss of -$7,929.  The seven good months had returns totaling $14,449.

Brexit Volatility

I was quite curious to look back at the daily returns for my 401K during the market’s Brexit volatility.  The vote happened during the day on June 23rd and the general news coverage was that Britain would remain in the European Union.

As a result, my 401K was up for the day, $1,309.  Then after the results came in, the world was apparently ending.  The next two days saw market losses of -$3,739 and -$1,702.  The next four days all saw market gains $1502, $1,413, $1,078 and $262.  In told, from the day of the vote which was on Thursday to the end of the following week, my overall market gains were little changed at $124.

Had I panicked and pulled my money out of the stock funds during the two-day fall, I would have missed out on the rebound over the next four days.

Long-Term Thinking

Since I am investing for the long-term, I never react to isolated events.  Sometimes I wish I had a pile of money that I don’t know what to do with so I can buy on the large drops, but I’m not that financially stable yet.  I believe that in the long run, the market will produce positive returns.  If it doesn’t, I probably have bigger problems on my hands.

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Net Worth Summary

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

One of the tasks that I do with my finances is to track my net worth. It’s my scorecard on how I am doing financially.  I have only been diligently tracking the number since the end of 2008.  I am positive the number wasn’t pretty before that time, as I was not very good at managing my finances before then.  So, how did I do this year and what were the drivers of the overall change?  Let’s take a look.

Net Worth

My net worth increased 14.8% from the end of 2014 till the end of 2015. It was a roughly $19,000 increase year-over-year.  I will say that I am pleased with the number.  It’s going up and the markets did not contribute much of anything to the increase.  The increase was driven entirely by debt reduction and savings.  It is also a far cry from the roughly -$19,000 net worth I had when I started tracking.


The biggest contributor to the net worth increase was my 401k. Despite having a negative return for the year, -2.3%, I was still able to grow the balance between my contributions and the company’s matching contributions.  The company has a flat 2% contribution and then matches dollar-for-dollar up to 6%.  I currently contribute 8%, so a total of 16% of my salary is going into my 401k.  The company’s contributions and the first 6% of my contributions go into a traditional 401k, while the remaining 2% of mine go into a Roth 401k.

Reducing Debts

Debt reduction was also a sizeable contributor to my net worth change. I only have two outstanding debts remaining.  The first is my mortgage, at 3.99%, and the second is a car loan at 1.99%.  I have not been paying any additional principal against the car loan, but I have been with the mortgage.  I refinanced the mortgage at the beginning of 2015 to eliminate the PMI I was paying.  Once the payments started on that, I began to pay an additional $215 a month towards the principal.  If I don’t change that payment pattern, I still will shave about 6 years off the length of the mortgage.


My savings and brokerage account did not contribute much at all to the net worth change. The brokerage account was up some and the savings account was down.  I wasn’t too surprised by the savings account decrease.  I had some money in there at the end of 2014 for large anticipated expenses in 2015.  The brokerage was up about $1,000 over the course of the year.  It was basically the amount I invested.  The dividends I earned cancelled out the market drop, so overall I just ended up with what I put in.

This Year

I largely expect a similar pattern in 2016.  Overall debt reduction should be just over $12,000 assuming I follow the same pattern as this year.  I don’t expect to have to deviate from that I and I don’t anticipate needing to take on any new debt.  The 401k savings will also remain the same.  The only variations will be from the incentive bonus, if any, and any salary changes.  I still contribute part of my bonus to my 401k and the company still provides a 6% match.  If I had to guess at a rough 401k increase for the year, I am hoping for about $16,500.  That would be absent of any market changes, just my and the company’s contribution.  Hopefully, I can see a rebound in the market performance of the 401k as I am in negative territory for the first two months.  I would be quite happy if the net worth change for 2016 was a positive 25,000 or more.  That would be a nearly 17% increase, I’ll take it.  How is your net worth doing?

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