Getting Back Into the Black

CNNMoney.com posted a good article for anyone that is still curious about the tax rebate checks that will be coming in a few months.  I think the most important part is this:

 People who have already filed their 2007 tax returns and reported at least $3,000 in qualifying income don’t need to do anything else. The IRS will assess their rebate eligibility and send a check to those who qualify. Qualifying income for the purposes of the rebate includes wages and salaries, Social Security benefits and certain veterans’ and retired railroad workers benefits.

I knew that my taxes were going to be really easy this year because I only had one stock sale in November so I filed the day after I got my w2.  I was actually quite impressed that the IRS had the money deposited into my account within 2 weeks.  Based on my past experiences with the IRS, I do not normally hold my breath waiting for them.

I recently ran into a very important issue that I should have seen coming. When my bankruptcy was discharged in November I assumed that my lawyer had filed a re-affirmation agreement with the bankruptcy court to keep 2 of my credit accounts active. One was for my truck, currently our only means of transportation and the other for a Kay’s Jewelry card that we had applied for about 2 months before we decided to file. I went through my paperwork for the bankruptcy and I found the notice I had seen before about how I would continue to pay on them and keep the collateral for the credit. Not knowing any better, I thought that was the re-affirmation agreement. I found out I was very very wrong. As long as I pay the bills I can keep the items (truck and a watch) but they could no longer report to my credit report. I was livid to say the least.

I contacted American Honda Finance (the loan holder for my vehicle) and asked if the agreement could still be filed and told that normally, after 2 months have past its not possible to amend the bankruptcy. I also did not want to run the risk of re-opening it in-case the IRS decided to make a move on my newly established savings accounts.

My only remaining option of course was to refinance so that I could once again get the credit reported to start rebuilding my FICO score. I went to LendingTree to submit my application to several companies at once and I was very pleased that after submitting my info, even with my horrible FICO and the bankruptcy and a tax lien that I got an offer to refinance from HSBC and RoadLoans.com. The interest rate was only about 2% over what I was previously paying (my last rate was high because of some late payments when I was laid off in 2003) which I was actually surprised about.

Refinancing is going to cost about $400 more in the long term, but the benefit is that for the next 2 years while I’m paying on my truck, it will be reported and help my FICO begin the long climb back to having good credit.

One last note, my current loan was originally for a 7 year loan that was set to be payed off in October of 2011. With the extra payments that I’ve been squeezing in when I can, I’ve managed to move that date up to April of 2011 so far. I had planned on paying off the balance by Feb. 2010 and with the refinancing it will actually move that up to March 2010. There is a great calculator at YoungMoney.com that you can use to determine how much interest you can save and how much shorter your loan will be by making extra payments. Once the truck is payed off, I’ll be 100% debt free and every extra dime we have will go towards saving money for our first home down payment.

I hate buying brand new things.   Obviously there are a few caveats to this: I do not buy used food, used batteries, or used diapers…ewww.  However, I love shopping around on ebay, craigslist, or freecyclelooking for stuff that my family needs that I can get usually for pennies on the dollar compared to the regular price.  My most recent purchase was 2 Blu-Ray movies, both in excellent condition for less than $15 each, over 50% savings off the retail price.

While these types of sites are great for saving money, you can also use some of them to make money as well.  Everyone knows that you have stuff in your home that you no longer use or will never use again.  A perfect example of this is baby items.  Until my wife found out recently that she was pregnant, we were vigorously trying to go through all of our baby items to find out what still retained some value and what we could donate to Goodwill or The Salvation Army. 

We ended up selling our old baby swing ($10) a stroller/carrier combo ($30) and a few sets of infant clothes ($20 total, $5 each).  That took a grand total of 30 minutes out of our life to make a quick $60.  I would suggest everyone go through their closets and storage boxes and determine what you do and do not need.  You’d be amazed at how much of your trash is truly someone else’s treasure.

My wife and I were going to the farmers market the other day to pick up our weekly supply of fruits and vegetables. We prefer to utilize the farmer’s market for these items since we know the items are grown locally and usually taste better than the store bought equivalent. Along with the fact that its usually cheaper, it is just a trifecta of benefits.
Getting back on topic, the only downside to the farmers market is that its a cash only interaction. As we pulled up to the parking I realized I did not have any cash on hand. I set about trying to find an ATM. Normally, anytime I need to get cash out I will either take out extra cash during a grocery store purchase or stop at the ATM at my bank. I ended up going to a small corner market to use their ATM. $1.75 ATM fee later and I had my $20 to spend on fruits and veggies.

Ever since we’ve started living under our budget I’ve really started watching every penny that goes in and comes out of our accounts. I was shocked after a few days when I see a $2.00 charge pop into my online banking application as an ATM fee for using an out-of-network ATM. $3.75 in charges for withdrawing $20 of my own money.

That is an 18.75% charge for withdrawing my money.

I know a lot of people that withdraw money from the ATM regularly, and if they are not using their own bank’s ATM those charges can add up quick. Talking with a friend and showing this to him he realized he was spending $20 a month on ATM fee’s alone. That is $244 a year he’s paying to access money that is already his. I don’t know about you, but I can think of a lot better things to do with $244 a year than pay fee’s to access my own money.

A few ways to save yourself from those fee’s:

1. Always use your bank’s ATM or in-network ATM’s. You can usually check your bank’s website to find out where their ATM’s are located.
2. Use your ATM card to make a purchase at a store and then withdraw extra cash at the time of paying.
3. If its possible, write a check!
4. Plan out your cash expenses every week. Take out enough cash on the weekend to cover any expenses you may encounter where paying with a card is not an option during the week.

The first step for my family to get our spending under control and to start saving money was to determine where our income was being spent. It took about 2 hours total to get all of this information and then get it down into an easy to read format.

1. Calculate your income after taxes, this includes any paychecks you receive along with any other sources of income.
2. Make a list of all of your expenses. Anything you spend money on monthly needs to go on here. examples: rent/mortgage, gasoline, insurance, online services, groceries, dining out, etc.
3. Take all of the expenses you have written down and divide them into two categories. Discretionary (you dont HAVE to spend this money but you do) and Non-Discretionary (money that has to be spent: groceries, rent, gasoline, etc)
4. Add up your monthly expenses and subtract that total from your monthly income. If you end up with a positive number then you are already on the right track. If you have a negative number, you are spending more every month than you make and are forcing yourself further and further into debt.
5. Make adjustments to your spending to increase the surplus you have after all your bills are paid. This may include not stopping for a latte every morning or reducing the amount of channels on your cable bill to get a lower bill, or even something as simple as taking food to work for lunch instead of dining out every day.
6. Lastly, you want to make sure you review your budget every month. Keep track of your expenses for a month either through your bank’s online services, a notebook, or whatever system works for you. After a month of living on your budget, compare your actual expenses to projected expenses and see what area’s need more work.

Once you have yourself trained to live within the budget you have created you can start planning how you are going to save your surplus and what goals you want to set for yourself.

I have several financial goals I want to hit before the end of the year. 

 My #1 goal is to pay off at least half of my truck balance.  Its at a 10% interest rate and is not due to be payed off until 2011, if I can keep up with my aggressive payment schedule (an extra $2400 - $3600 this year) I can get it payed off by 3rd quarter of 2009.  It would save me about $800 and cut my loan term by almost two years.

My other goals are:

Emergency Fund: 4000
I’ve never had an emergency fund because I never knew I needed one until I set out to to take control of my finances.

New Baby Savings: 3400
My wife found out last month that she may be pregnant.  We’ll get the official word from the doctor next week.  In anticipation of that, I am putting the money directly into an ING savings account at the beginning of every month.

 Every other dime we have will be going into a savings account for our first home purchase some time in the next 3 years.  I need to start rebuilding my credit score before I can apply for a home loan, so I figured I may as well be ready once my score is where it needs to be.

A comment over on freemoneyfinance.com really caught my eye just now. I’ve been trying to figure out exactly how the Economic Stimulus Package is going to affect me and my family over the next year and especially how its going to affect my taxes.

CF had this to say:

***They’re temporarily removing the 10% tax bracket on the first $6,000 in income for single filers (total of $600), and the first $12,000 in income for married filers (total of $1,200)***
To use an example: Assume congress never passed this bill, and suppose you are someone (an individual filer) who would receive a $300 refund next year for your 2008 taxes. What would you rather have?
1. No stimulus package: $300 refund in April 2009
2. Stimulus package figured on your tax return: $900 refund in April 2009
3. Stimulus package as it has been passed: $600 in June of 2008 and $300 in April of 2009

I’m taking #3 every time.

While it may be an “advance” on next year’s taxes, it’s a prepayment of an excess that they’ve decided to give. If they had passed nothing, we’d be worse off. I hope this makes sense - sorry if it doesn’t, but bottom line, we’re better off financially with the stimulus than without.

I think thats the best summary so far of what is in store for us. My thanks to CF for clearing it up.

Freemoneyfinance.com has a great post up about several of its users spending a little time to save money from Comcast and DirecTV.

• Not only will I save $360 this year…
• So basically I “saved” $390 for about a hour of my time…

I had a similar experience last month. Comcast wanted to raise our bill from $55 (after tax) to about $80. I tried calling their customer service center but didnt really get any offers I wanted. So the next day I took the box into the local office and asked them to cancel. Within 10 minutes I had a very nice woman offer me their intro package for $30 a month for a year, including free HD and free DVR service. Taking 20 minutes out of my day actually saved me over $500 a year!

Does anyone else have any similar experiences?

After all of the confrontations with the IRS I’ve had over the past year I was not expecting to get an income tax return. For the past few years its been common place at our home for us to file our income tax, expect a refund and a few weeks later get a notice in the mail that our refund was kept and applied toward my outstanding balance.

While I dont like to count my chickens before they hatch, I’m happy to report that I will be getting my refund this year. I talked to the IRS yesterday and they have the payment scheduled to go out tomorrow into my checking account.

Of course, being the obsessive compulsive person I am, I’ve already marked all of it for use in our savings and travel plans.

Where’s your refund? - goes to the IRS website.

Kiplinger.com has a great article that shows the three simple steps to starting down the path of financial security.

Three Simple Steps to Financial Security - Kiplinger.com

• Save for a rainy day - There are two ways to buy what you want in life: cash or charge. The very definition of financial security is being able to buy what you want on your own terms.
• Be prepared for an emergency - Even the best-laid financial plans can get derailed by an unexpected cost
• Invest for retirement - Your immediate and short-term needs are easy to focus on. However, it’s not so easy for young adults to take this third step seriously.