What will you do with your tax refund?

by Stew | Posted in Taxes | 14 Comments

A couple of weeks ago, I asked, Should a believer contribute to IRA’s, 401K’s or other retirement accounts? The post generated some interesting comments and discussion. While I still think that some form of retirement savings is a good idea, my financial focus was challenged by that thought: Am I really storing up treasure in heaven? Or am I focused on comfortable life here on earth?

This weekend, I finished the bulk of my tax work. I have just about all of the numbers entered and I am waiting for a few documents to arrive before I submit my final filing through Turbo Tax. It looks like I am going to get a pretty nice refund. I’m not crazy about our government sending all kinds of cash to people like me who are going to get more money back than they paid in the first place, but I accept it as a fact of our country.

You see, we are in a financial situation where we depend on our tax refund, again, I wish that was not the case, but this year, that money will go toward paying off the final portion of my school loans and the rest of a 0% introductory APR balance transfer that is about to expire in March. Every year we get closer to balancing our budget without that tax refund – this year will be the closest that we have come to that point. Most years, our refund money is spent before it is direct deposited in my checking account, but I started thinking: what I would do if I could balance my books without that influx of cash every March?

You know what I wish I could do? I would like to my tax refund to my church. Think about it – it is a painless donation, all I have to do is file my taxes. If we could live within our annual income, I could make a charitable donation with my tax refund! Since tax refunds do not count toward annual taxable income, the donation would provide a major deduction on next year’s taxes. I have a number of friends who are getting refunds in the amounts of$4,000 to $6,000 – that is major money.

Now, I prefer to give most of my charitable donations to my church. I am confident that the money is being used wisely and according to the budget. I am certain that funds given to my church will be used in a God-honoring way. You might not have the same confidence in your church – I would ask, then why are you attending there? But if your are not comfortable with a church donation, maybe choose a charity that you are excited about.

I know, the temptation to use free money for retirement or to add to one’s savings account is strong.  I know of a lot of people who use their tax refund for stuff like flat screen televisions or an extra vacation or a down payment on a car or an Xbox or a Wii – yikes! God has promised to meet our needs and if He has met your needs,  maybe your tax refund is something that He could use to meet the needs of your neighbor.

(If your income level is such that you do not qualify for a tax refund, I want to thank you for the donation that you have given the rest of us.)

Article by Stew

Photo by diametrik

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Friday Gathering: Signing Day Edition

by Stew | Posted in Friday Gatherings | 4 Comments

If you are a college football fan, this was a big week. All the fans in my state are upset about all the top recruits that signed to play out of state . . . Here are some articles that I found interesting this week:

I am not quite sure what to think of Lynnae’s post about her 5-second rule. I tend to be a little like Jerry Seinfeld when it comes to germs. Maybe that’s why Lynnae is “being frugal” and I’m just Stew . . .

I do not think I have a shopping addiction, but I read the Silicon Valley Blogger’s ten questions just to make sure.

Ron asks, Would you rather be right or be employed? I tested the boundaries of that concept recently . . . thankfully I am still employed. ;)

Mighty Bargain Hunter eats oat meal for snacks. Bleh. But he seems to save money doing it, maybe I need to broaden my tastes.

Generation X Finance relays some advice on what to do when you have a bad financial advisor. Good article, is what should I do when I give myself bad financial advice?

That’s the list. Have a great weekend and remember, do not just spend money, spend time with family.

Article by Stew

Photo by SD Dirk

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Cash ISA Guide

by Mike | Posted in Guest Posts | 1 Comment

I have been contacted by MoneySuperMarket.com to publish an informative post on Cash ISA accounts. This is a financial product available to residents in the United Kingdom. Since we have UK readers, I thought it would be a nice initiative. In fact, it is pretty similar to the TFSA (Tax Free Savings Account) in Canada on the taxation perspective.

Anyone in the UK who’s interested in saving some money for a rainy day should definitely consider a cash ISA account – they make great financial sense, and are nowhere near as complex as their predecessor the PEP. This guide will go some way to explaining cash ISAs to you, and hopefully make you a more discerning spender…

How does an ISA differ from a standard savings account? The answer is actually very simple and is only one word: tax. A normal savings account will be charged 20% tax on any interest you earn, rising to 40% if you’re a higher rate tax payer; while an ISA allows you to earn interest on a predetermined amount of money cash free. The catch is that you can only deposit that amount in one year, and any money you withdraw, you will lose tax benefit on.

Currently, the predetermined amount you can deposit sits at £3,600 for under fifties, and £5,100 for those over 50 , although this will change at the start of the 2010/11 tax year to allow everyone to save £5,100. As mentioned previously, you should remember that you cannot replace any money in those accounts over the predetermined amounts – for example, if you placed £5,100 in an ISA and withdrew £100 of that money, you would not be able to replace it as you have already deposited your allowance for the year.

Due to their tax-free nature, ISA interest rates do not have to be as high as usual saver accounts in order to generate the same net amount. For example, a 3% Interest rate on a cash ISA would earn the same amount as a 3.5% standard saver, or a 5% saver if you pay the higher rate.

Do yourself a favour, however: Once you’ve got your ISA set up and transferred money into it, don’t be tempted to rest on your laurels. Providers are always releasing new deals and offers, and as most ISAs do not tie you in for a set period, it can often be worth keeping an eye on what’s being offered. Moneysupermarket says “As with standard savings deals, there are catches that you need to watch out for. Some accounts include introductory bonuses, so the interest rate drops after a while – there is no need to avoid such accounts, but you need to make a note to move your money elsewhere once the bonus period ends otherwise you could be left earning an uncompetitive rate of interest.” There is one important rule when it comes to transferring ISAs however, and it is this: Don’t just withdraw the money from one ISA and place it in another, as you will lose your tax benefit for the entire year. Instead, your new provider should allow you to fill in a form in order to transfer the funds from one ISA to the other while keeping the tax benefits.

As previously mentioned, a wise saver can get themselves a great deal if they look around. Cash ISAs can make a huge difference to your rainy day fund, so there’s no reason not to make sure you’re getting the best from them. Compare cash ISAs at Moneysupermarket.com.

This post was provided by the Cash ISAs team at moneysupermarket.com

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Our Bank Network

by Stew | Posted in How to Get Your Finances Under Control | 4 Comments

I am a numbers guy . . . a little obsessive compulsive . . . I like organization and strategic planning. I understand if some of you might think this kind of information is a little “wonky”, but I thought I would lay out our bank set-up for you and see what you think. This is the bank set-up that Mrs. Stew and I have used for almost four years now:

Every year, we each open a new Chase checking account with $125 bonus coupons. Chase allows for one coupon per customer, per calendar year and an extra $250 every spring is nice to have. So far this year, I have yet to find one of the coupons, though. A bonus coupon would sure come in handy right about now. Of course, in order to qualify for the bonus, we have to set up direct deposit, but that is a small inconvenience in return for the extra cash. The majority of my work check is deposited into my account and the rest is direct deposited into Mrs. Stew’s account.

Our primary family savings account is held at First National Bank of Omaha or FNBO Direct. Back when I opened the account, FNBO had the best savings APR. Now their interest rate is not much better than any other bank, but they pay a little interest in their online billpay account and I do not feel like moving the money somewhere else and having to re-enter all of our bill information again. The cash flow in this account is pretty much in one month and out the next. No long term savings or even designated savings, just day to day operations.

My favorite bank is ING Direct. Here we have our children’s savings accounts and designated savings accounts – I really like ING’s sub account feature. The main thing that I use our ING Direct accounts for is keeping track of alternate income. I have three categories: professional freelancing (related to my job), Mrs. Stew’s childcare income and my blogging income. I deposit revenue from each of these sources and then directly deposit a portion of this money into our Chase accounts regularly during the month. Income from these sources comes in fits and starts, so this allows us to budget according to regular cash flow and build up a surplus over time. The sub accounts also make it easy to keep track of revenue and spending for tax purposes.

Our Chase accounts are kind of the base of operations. We make deposits into our local Chase branches and then transfer the money to its proper destination. I do not automate any area of my finances. I like to control when bills are paid and when transfers take place. After all, I’m a little OCD and I like to tinker . . .

Article by Stew

Photo by Hannaford

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Teaching Your Children About Money Lesson #3: The Meaning of Sacrifice

by Mike | Posted in Kids and Money | 1 Comment

As you have, no doubt,  already read, I am trying to teach my 4 year old son lessons about money. It is hard to teach them everything about money at this age, but I can tell you that children can learn a lot more than we think! It’s only a matter of repeating clear and easy to understand concepts. In fact, most personal finance concepts are pretty easy to understand and this is why I am trying to teach them to my son at this tender age.

By starting his financial education so young, I just hope he won’t have to struggle with credit card debt or having trouble plugging his income and expenses into a budget. I hope that if he understands the true value of money before he starts earning it, he will be more careful and make the best financial decisions for himself.

Today’s money lesson is about the limited power of money. While I have described all the good money can bring in one’s life during the second money lesson, money can also be a weapon of massi destruction when it is not respected or properly controlled. This is why I want to talk about sacrifice.

Think that you can afford just about everything because you have easy access to credit, Whoa! This will only last so long. This is why it is so important to understand how to fit your lifestyle within your budget. But how do you teach a child to stay within a budget? You can do it with practical examples.

Daddy has to go to work this morning

My son sometimes tells me that he misses me when I go to work all day. He doesn’t like when I come home late (about once every two weeks). As I mentioned in my first post about teaching money lessons to children, I explained to him that this is the price to pay in order to live in our house, do activities and play with so many toys!

I tell him that while my job is to go to the bank every morning, his is to listen to his mother and behave like a big boy. This is his job and this is how he participates at his young age in our household. I tell him that I need to leave the house to earn an income during the day so he can play soccer and skate on the weekends, so we can all go on vacations and to afford ordering out dinner on Friday evenings. I am trying to show him that by making sacrifices, he is also rewarded.

You can only have one toy at the store

When you go to a toy store with a kid, it’s like Christmas each and every time! My son starts out by looking at all the toys with his sparkling wide-eyes and he keeps saying “Hey dad! Look at this one! This is cooooool!”. But I one point, I tell him he can chose only one. He usually asks why and I explain that with the money I have in my pocket, I can buy one toy, pay for the gas and pay for groceries (so the family can eat).

Then, I offer him the choice of walking 3 hours to get home, not eating or having only one toy. Luckily for me, he has never picked the first two options ;-)

If you wait long enough, we will be able to pay for it

My son has been asking for a Wii for about 18 months. He played at a friend’s house when he was 3 and since then, he “really” wants one. I told him that a Wii is very expensive. But instead of telling him that we can’t afford it, I told him that we have to wait several months so we can buy one.

So month after month, I told him that we were putting money aside so we can buy the Wii and play. We ended-up buying the console for Christmas. While Santa Clause brought him the Wii, we told him that we used the money we put aside to buy the video games. Each time that we have a big purchase (like going on vacation once a year), we tell him that we put money aside each month in order to get by after a large purchase.

The limited concept of money possibilities

I think that the most important thing to learn about money is that while it can help you achieve great projects, you are always limited by what you have in your pockets. Overspending or taking for granted that you will earn more money later on to pay off a debt is not the best way (contrary to many).

Sacrifices and planning your expenses ahead of time is a much healthier way to plan your personal finances. In the end, I just hope that my son realizes that. If I take the time to explain to him how many months we have to save before we can afford specific purchases, I hope he’ll do the same in the future!

Author: Mike.


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