Gather Little by Little

In one of my first posts here at Gather Little by Little, I revealed that my personal finance history is not perfect. There have been some lessons that we had to learn the hard way . . . and there are certainly more lessons to come. I also said that I hoped to be honest with GLBL readers about our family financial journey. Today’s post is one such time that I thought about obscuring the truth a bit. I mean, it’s kind of embarrassing for a personal finance blogger to have a tax error, isn’t it? Here is the story:

In 2006, our family reached our financial low. A number of factors moved me to the point where I knew that I needed to do something drastic or we were going to fall off a financial precipice. We were not spendthrifts, we did not have loads of consumer debt, we were not facing a health emergency, but I could see that we were on the wrong path. I began to make some changes in our financial habits – most were good ideas – budgeting, using cash, got a better job, etc. However, a few strategies that we employed to generate extra cash resembled a “get rich quick” scheme more than “gathering money little by little” and at the end of this month, I will reap a bit of what I sowed.

Once I realized that we were headed for financial trouble, I became very proactive about our finances. I watched every penny like a hawk. I started to read personal finance blogs, most of which gave sound advice, however the first few blogs that I happened upon were “free money” blogs. Blogs that dealt with credit card bonuses, bank account bonuses and 0% balance transfer arbitrage. At the time, banks were throwing money around. Bank bonuses were everywhere and some were really large – especially when you qualify yourself for a bonus and then your wife qualifies for the same bonus and you double your money. I could go on all day about the various things that we did along these lines to generate extra cash. I’ll save the details for other posts. The bottom line is that we ended up with close to $80,000 of credit card balance transfer money in a couple of savings accounts along with approximately 35 different bank accounts and close to 40 new credit cards. We had earned close to $5,000 in free money! Looking back it sounds crazy, but at the time, I thought everyone was doing it . . .

Here was my mistake: when I filed my 2006 tax return, I claimed the Earned Income Tax Credit. The EITC is a tax credit for households who have children and earn less than a certain amount. Here are the basic rules to claim the EITC in tax year 2006:

• You have more than one qualifying child and your earned income was less than $36,348 ($38,348 if married filing jointly)
• You have one qualifying child and your earned income was less than $32,001 ($34,001 if married filing jointly)
• You do not have a qualifying child and your earned income was less than $12,120 ($14,120 if married filing jointly)

Under these rules, we qualified for the credit, but there is one more factor – our interest income had to be less than $2,800. This is where I made my mistake. Bank bonuses are considered interest income and we had also made quite a bit of money from the balance transfer arbitrage. As I read through the IRS literature, I became aware of the rule and began to add up all of our interest income from the previous year by using the 1099 forms provided by the various banks. The total that I arrived at was $2,753 which qualified us for the credit. Or so I thought.

This last May, I received an ominous looking envelope marked Internal Revenue Service. I opened it to discover that our interest income from that year was actually $2,813. I had missed $60 worth of referral bonuses from Virtual Bank. We have been given 60 days to pay what we owe, which happens to be the amount of the credit itself plus a little interest. If we pay the bill on time, we will not have to pay a penalty, thank goodness. I do not plan to contest the ruling, I made the mistake, there are no grounds for me to appeal. It just comes at a bad time for us . . . oh, well.

Here are some things that I plan to do differently going forward:

• Keep better records. I missed the bonuses in part because they were not entered in my spreadsheet.
• I also made the mistake because I added improperly – going to make sure next time.
• I doubt that I will ever chase bonuses to that extent ever again. My wife and I make sure that we get a bonus with every new account that we open, but we open the accounts because we need a new account, not because we need the bonus.
• I am going to take a little more care with my tax returns.

In case you are in a similar situation, here are the EITC interest income limits for the past few years:

• 2007   $2,900
• 2008   $2,950
• 2009   $3,100

Hopefully you never have to deal with the IRS and a tax mistake.

Photo by Stewart

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I was reading over on CNN Money this weekend that a health care market research company is seeing a growing trend in consumer use of credit cards to pay for medical bills.  Due to high unemployment and ever increasing health care costs, consumers are reaching out to credit in order to continue receiving health care.  Now, here’s the scariest part: CNN also reported that health care industry watchers see a multi-billion dollar opportunity to offer specialized “medical” credit cards!

If you haven’t figured this out already, let me explain this simply: “Consumers” (That’s you folks) visit the doctor one day, and potentially pay for that doctor’s visit for the next 1-5 years.

Already, 25% — 74 billion or so — of the $294 billion spent on out of pocket medical expenses is charged to standard credit cards.   With our current economy and jobless rates skyrocketing, this number is expected to grow quickly.  A health care consulting company, McKinsey Consulting, expects this number to grow to $150 billion by 2015.

How can you avoid having to use a credit card for medical expenses?

Here are just a few ways you can avoid using credit cards to pay for your medical expenses:

• Have a medical emergency fund – Start saving money to a medical emergency fund.  Use this fund to cover unexpected medical costs.  Learn more about specialized emergency funds.
• Set-up a Flexible Spending Account or Health Care Savings Account – Not only do these specialized savings accounts reduce your taxable income, they also can cover your medical expenses.  I’ve used an FSA (Flexible Spending Account) for the past 10 years and found it to be a powerful too for saving money and covering required medical expenses.  Learn more about Health Care Spending Accounts from Cash Money Life.
• Budget for medical expenses – First, if you don’t have a budget, create a budget.  Make sure you include an expense category for planned medical expenses.  This category would include any prescription medicines you require, over the counter products, upcoming doctor’s appointments, etc.  Accounting for these costs in your budget allocates money for those expenses and will keep you from having to use credit cards.
• Talk to your doctor – If you’re struggling financially right now and feel you might not be able to cover medical costs without resorting to credit cards, talk to your doctor.  Doctors can often reduce their expenses, provide tips for getting lower cost health care, or refer you to services that can assist you with medical expenses.  Don’t be ashamed to ask!  Medical costs are expensive.

What are your thoughts on this?  What tips can you share with other readers to soften the blow of medical expenses?  Add a comment!

This article is part of an ongoing series called Money Saving Monday. Each Monday, I share tips and techniques you can use to start saving money.  Have a tip?  Send it my way.

Photo by: dionhinchcliffe

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After weeks of waiting, we’ve finally been able to enjoy the fruits of our labor from our home vegetable garden we planted back in May.  As you can see in the picture above it’s very  different from the barren look it had in May.  So far we’ve enjoyed a number of fresh spinach salads and more recently my second favorite garden vegetable: Squash.  Unfortunately, it’s getting a little to hot for the spinach and it’s yellowing up quickly.   We’ve considered planting something in it’s place, any suggestions?  Here’s a shot of our first two yellow squash:

These little guys were floured and fried soon after this picture was taken, and man were they good.  Yes, we fried them…we’re in the South, we fry everything   Seriously, we don’t actually fry foods much, but fried squash is one of the treats we love.  We ate ourselves into oblivion, even our kids love it.

The cabbage is growing, although not near as fast as I would like.  I mentioned yellow squash was my second favorite, cabbage is my favorite.  I love it fresh in salads, boiled, and fried as well.  Yes, fried cabbage.  I’m surprised at the number of people that have never heard of fried cabbage.  Here’s how you make it:

Get  pack of bacon and fry it in large, deep frying pan.  While the bacon’s frying chop the cabbage up into pieces about 1″ by 1″ square.  Once the bacon is done, pull the bacon out, but leave the grease.  Put the cabbage in, crumble the bacon up into small pieces and mix in with the cabbage.  Cover tightly and cook for about 20 minutes or so.  Make sure you stir it so it doesn’t burn.  Once done, serve.  It’s that easy.

Fried cabbage is incredibly unhealthy, but man is it good.  Nobody else in my family likes it, so I don’t get it often at all, but can’t wait to make some for this year.  Anybody have a good recipe for cabbage soup?  I’ve heard it’s tasting as well and would love to try it.

Other veggies such as our tomato’s, okra, zucchini, carrots, cucumbers, and green beans are all coming along nicely.  It’s been a bit dry here, so that has slowed the growth down a bit.  Fortunately it rained all day yesterday, so I’m hoping that speeds things up again.  I’m pretty confident we’ll get some tomatoes next, as they are starting to go from green to orange.

A family affair

Our whole family enjoys the garden and our kids love checking in on it daily to see how things are coming along and especially pulling anything that’s ready.  My 6 year old thought it was the coolest thing to pull the squash, take it down the house and eat it a few minutes later.   I have to say it’s been a rewarding experience planting the seeds, tending to the weeds, turning the soil and in the process watching the plants slowly grow and now finally bearing the eatable vegetables.  To be honest, I think we’re going to get more than we can eat, and will most likely share with our neighbors.

The garden has also been very educational for our children as well, as I think they literally though that vegetables either: 1) Just appeared at the grocery store or 2) Were made in a factory.  They’ve learned a great deal through planting the seeds and watching the plants grow.  They are amazed at how different each plant is.  My younger kids were shocked to learn hat carrots grew in the ground and were pretty much a root.

Compost Update

The compost cooking in the compost bin I built is coming along rather nicely as well.  One side has been cooking since the end of May.  We stopped adding to it in June due to the one side being full.  Now, it’s about half full of what is now rich but still not fully broken down organic material.  The other side we continue to add to.  About every two weeks while the kids are inspecting the garden, I spend 10 minutes or so turning the compost.  This not only ensures the necessary air exposure is provided but also makes sure the areas that aren’t cooking get mixed in.  Each time I’ve turned it, I’ve noticed a considerable amount of heat in the center, which is exactly what you want.

If things continue on track, come September, I should have some nice and rich compost material to throw on the garden to not only prepare it for the spring, but we’ve also considered keeping a winter garden.  I’m still researching if that’s possible since we get such cold temperatures here in the winter.  Cleaning out the main bin will also provide me with some space to put all the leaves I’m sure we’ll get again this fall.  Leaves make for great composting material.

One project I’ll need to build before then is a compost screen.   Our compost has lots of large sticks and even a few rocks that need to be removed.  Not really sure how all of that got in there though…kids maybe?  I even found a few plastic plant leaves over the weekend…huh?

Anyway, that’s the update on our vegetable garden.  How’s your’s coming along?  Add a comment!

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Neither I, nor my wife are all that excited about her taking a full-time job this fall, but she is going to do it anyway. There are a thousand reasons for her to take the job that she has been offered – and a thousand reason for her not to take the job.

For

• The job will increase our household income by almost forty percent.
• The job will allow us to maximize our 401K employer match.
• The job will provide free private school education for our children.
• If she does not take the job, we would have to homeschool.
• The job will allow us to start to accumulate an emergency fund.
• The job will allow us to replace some household items that we have been “nursing” along for several months.
• The job provides a significant opportunity to pay down our remaining debt – car loan and college loans primarily.

Against

• Our two and a half year old will have to go to preschool – the same one in which my wife is working . . . but still.
• The job is a full year commitment with only five days of vacation beyond the national holidays. That’s tough.
• My job is not “9 to 5″ – lots of odd hours, weekends, etc.
• I am going to have to do a lot more around the house. A lot.
• We are going to have to get the two-year old potty-trained by September and I don’t think he is ready.
• Our children will have to spend their summers in day camp or day care.
• We will have to purchase a second car and my wife will need to purchase “business” clothes.
• My wife will not have time to be the mother that she wants to be.

I feel like we are being forced into this decision simply because it makes good financial sense. I’m not sure that money should be the only reason to make a decision like this, but I’m not sure we have a choice right now. My wife and I would really like her to be a stay-at-home mother and wife.

I guess we can survive anything for a year.

I hope.

From Glblguy: Readers, what are your thoughts? Have any of you had to make a similar decision? How did it turn out? Any regrets? Add a comment!

Photo by cambodia4kidsorg

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I’m pretty confident most if not all of you know that we’re currently in a recession or as the more politically correct like to call it: “An economic downturn”.  When I say everyone, I mean everyone…even the crooks and scammers.  During these lean times, con artists are out in masses looking for opportunities to scam people by offering what seems like legitamate solutions.  These scammers aren’t just taking money from people, but from our economy as well.

Scammers commonly work by offering people hope in the form of job placement, access to free government grant money, get-rich-quick plans, phony debt-reduction services, or the chance to work at home.   Once you sign-on, these scammers do nothing but put you further in the hole by taking your money and doing nothing in return or even worse: using the information you provided to steal your identity.

Operation Shortchange

I recently received an email from the FTC making me aware of a new program they have called Operation Shortchange.  Operation Shortchange is an effort by the FTC to aggressively educate consumers on how to spot a scam.  They are also significantly increasing law enforcement of scamming operations.  They recently announced 15 FTC cases, 44 law enforcement actions by the Department of Justice, and actions by at least 13 states and the District of Columbia in order to make a significant and positive impact.  You can read all about the cases in the FTCs detailed article.

Of course law enforcement can only do so much, and the best way to attack this ever growing trend is by educating the public.  The FTC knows this, and as a result has created a video that teaches people how to spot scams and scammers.  The new video features two scam victims and a former telemarketer of fraudulent business opportunities who explains exactly how he got people to part with their money.  Check out the cases and the video at www.ftc.gov/opa/2009/07/shortchange.shtm.

The FTC has also created a resource to assist you with avoiding business opportunity scams.  You can read all about those at www.ftc.gov/bizopp.

Don’t be a victim of a scam

Don’t be a victim of slimey scammer.  Spend a few minutes viewing the FTCs site watching the video and reading up on their resources.  Spread the word too as I think everyone can benefit greatly from this information.

Photo by: Salim Virji

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