Financial literacy gave me hope!

Oh hi, and welcome to my post in the Financial Literacy Awareness Carnival, being hosted by Shannon at The Heavy Purse.

Financial literacy is personally important to me because it gave me the hope I needed to really get my own debt paydown moving.

A slow start

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Debt never just happens. It eases its way in, grows, and festers. Then it takes over, breaking even your will to get rid of it.

I had over $160,000 in credit card debt and student loans by the time I finally convinced myself to get started paying it off.

And when I did start, I came at it with the mentality that the best I might hope for would be to not fall into the abyss.

The issue with starting so close to the edge was that mentally, I was still broken; making a meaningful dent in my debt — let alone paying it off! — looked so far outside my capabilities that I barely wanted to try.

Of course, when I first started sending money toward my debt at the beginning of 2013, the numbers went down, but slowly.

But I made a lucky decision back then when I resolved to start blogging alongside my small payments.

Blogging about paying off my debt not only held me accountable to making those payments, but it also helped me to get smarter about personal finance.

No, getting more knowledgeable didn’t directly make my loan payments smaller.

My aha moment

But financial literacy did help in many other ways.

It taught me how to deal with credit card issuers to ask for lower rates and balance transfers, and how to work with student loan issuers to make my payments more manageable.

It taught me how to budget and live more frugally so that I might have even more to send toward my debt.

And it taught me the power of compound interest and how small changes can add up to a very big impact over time — even big compared to the size of my debt!

My aha moment was when I found out that I wasn’t facing an impossible task — that I did have a chance to beat my debt and that I had the tools at my disposal to do so.

Today, my debt is over $40,000 less than where it was when I started. I still have a long ways to go, but thanks to financial literacy, I have the tools — and more importantly, the hope — to get there.

Why I’m still happy to be getting a tax refund

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I’m happy like this bear. Source: Valerie via Flickr under a Creative Commons license

Ah, the tax refund. There are few times of year when personal finance enthusiasts and other Very Serious People feel as much smug satisfaction as they do in seeing the (unwarranted?) glee in their friends’ and neighbors’ faces upon receiving a big tax refund.

This smugness comes because receiving a refund after filing a tax return implies that you overpaid during the year, and if you had instead put that over-payment into a savings account, you could have made a little bit of interest income instead of letting the government hold onto that money for you for free. THIS IS A BIG DEAL!

As I put the finishing touches on my own taxes for 2013, it looks like I’ll be getting a little bit of a refund too — not the biggest one out there and certainly not as big as the refund I got last year for the 2012 tax year, but it’s there nonetheless.

Here’s why I’m still pretty happy about it.

Taxes are hard

My taxes are a little more complex than the average person, but I think everyone out there can agree that taxes aren’t the easiest thing in the world to figure out.

Even when professionals are tracking your taxes year-round, they can still make mistakes that they don’t find until the last minute. And even if they don’t make mistakes, estimating everything so that you owe exactly nothing at the end of the year is still pretty tough.

Either an exemption that you’re not entitled to or a deduction that you thought you were getting but aren’t, can mean the difference between getting a small refund and owing a pretty sizable amount.

Yes, if things do go your way and you end up with a $500 refund, you’ll feel a little silly about not earning any interest on that money during the year. But if things don’t go your way and you end up owing $500, that can make for a very bad month or two. And if your finances are already out of order, having to come up with $500 quickly can be pretty catastrophic.

Interest rates aren’t that great

So that $500 refund; even in the best-case scenario, I could have only made about $5 in interest throughout the year.

Are you really gonna spend all week acting self-righteous because I missed out on $5 worth of interest?

Get a hobby — some hobby that doesn’t involve acting like a clown.

It shows that I’m a human being

A refund of $500 at the end of the year breaks down to about $20 per paycheck. Yes, I’m definitely not the sort of person who would turn down $20 every couple weeks, but it’s easy to ignore those little losses.

Meanwhile, you know who feels pretty great about getting $500 all at once?

Every human ever.

Someone tell me I’m wrong.

Oh, and everyone: Have a nice week :)



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Send your taste buds on a trip around the world with Try The World

Hey guys.

I entered an exciting new stage of blogging today by conducting my very first interview ever.

Read all about a neat new company in my newest post, “Try The World sends your taste buds on a trip around the world at a fraction of the cost” on my companion site Adventures in Frugal, in which I spoke with co-founder David Foult!

Try the World sends subscribers a box filled with hand-picked gourmet foods from a different city around the world every other month, along with tips on things to do in the city as well as movie and music recommendations to put on while you’re enjoying the snacks.

And have a wonderful weekend :)

Source: David Foult

Source: David Foult

How an IRS audit can make you sick

[Hey, I'm doing another post exchange with another blogger. Today, that blogger is Jordan from Beer, Bacon, and Business; see his bio for more information about him. Look for my companion post on his site soon. Interested in doing a post exchange? Make sure you have your own active, personal blog and that you're cool with me editing your writing, then contact me -Ed.]

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Source: Ryan Hyde via Flickr under a Creative Commons license

Let’s face the facts here; taxes are scary!

Oh, you think you’re all tough and muscular? Do you even lift? I bet if I said the words, “tax returns,” you would whimper like a little baby in need of a diaper change. Say the words, “tax audit,” and that whimpering turns into full-on bawling.

No one wants the IRS snooping around, even if they have nothing to hide. IRS audits can be terrifying and statistically speaking, they’re pretty rare; only one percent of Americans go through that ordeal. Now that‘s a one percent you don’t want to belong to.

Wondering what makes you more susceptible to an audit?

Make one mistake in filing your returns, and you could have the IRS at your door.

Are you a big earner or have assets running into the millions? The IRS has got an eye on you.

Fudging your taxes? You should be especially worried.

Here are some things you can do to avoid tax audits by the IRS:

Report all your income

This one’s a must! Don’t think for a second that the IRS doesn’t know that you work two jobs.

Using either the W-2 and the 1099 form, account for everything that you earned, even if it’s gambling winnings (No, seriously; casinos have to report winnings to the IRS, so someone out there knows how you’ve been spending your time).

It’s especially true if you’re self-employed. Don’t cheat when it comes to your income, because you’ll have to pay a big price for it.

Have all your supporting documents in place

I cannot stress this enough. If you think that you qualify for a deduction, add the appropriate amount of paper work to justify it. Don’t just assume you’ll get one. Whatever your expenses have been, make sure that you have evidence to qualify it, be it spread sheets or your bank balance. Everything should be crystal clear and make sure that the IRS knows you have nothing to hide. If you have lost any important documents, you can use the 4506-T form to get a copy from the IRS.

Check and re-check your math

I understand that math is not everyone’s cup of tea. But it’s important that you have the right numbers, otherwise the IRS will come to you. If you think round numbers are easier to work with, then too the IRS might ask you for more specific numbers and supporting documents. If math isn’t a strong point with you and the likelihood of you making a silly calculation error is high, I suggest you go to a professional like Pershing Yoakley & Associates or 1800accountant.com. It will just make things easier for you and the IRS both!

It’s all about neat and clean returns

The numbers are illegible? Well then, isn’t it obvious that the IRS wants an explanation? File a decipherable return and you won’t have that problem.

Being too charitable might get you in trouble

Charity is great. A too large amount of charity which seems a little odd compared to your income bracket? Yep, the IRS will come after you because they know what average charitable amount is for people in your tax bracket. Proper paper work is everything. So, if you can prove that you are more charitable than the rest of us, then you’ve got no problem.

Business meals, travel and entertainment

Schedule C will help you get a good amount of deduction because it’s all just business after all. Ask for too much, and the IRS would definitely want an explanation. Be careful, especially if you’re self-employed. And again, details are all important!

So you have a hobby (And you make a profit)

If you bake cookies, your neighbors love to gorge on them and pay a good price for them too, and this has happened for three out of five years that you’ve been at it, it’s no longer a hobby my friend; this qualifies as a business and you have to pay the appropriate amount of taxes for it.

These are just some of the steps you could take to avoid an IRS audit. But don’t be too worried. Sometimes, all the IRS needs is a proper explanation. If you give them that, there won’t be a problem. Remember that proper documentation and timely filing of taxes will take you a long way.

All Rights Reserved. Jordan is the original Author and DebtBLAG.com is the authorized Publisher of this content. Unauthorized republishing of this content will result in violation of Copyright laws. Doing the same may lead to initiation of legal proceedings by the Author and/or Publisher. However, you are allowed to like, tweet, share or promote the article link in your network without prior permission.

Author Bio: Jordan Greer is a 28 year old entrepreneur and a former Business Developer. With an insatiable appetite for the good life, keeps himself current on topics related to technology, gaming and his first love, food. He shares his views on his blog posts hoping to provide valuable information to entrepreneurs like himself who wish to establish a successful business.

Here are my personal finance goals for April 2014; finally bouncing into spring

Good morning! As we continue into April, I’d like to do a quick post to lay down a few personal finance goals for me to strive toward this month.

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Source: Tambako the Jaguar via Flickr under a Creative Commons license

April Goal #1: Pay down some freaking debt. That’s what this blog is about; isn’t it? And yet I’ve managed to find plenty of excuses during the first few months of the year to move slowly on debt repayment. That needs to end now. I am anxious to get going as I enter the post-tax return part of 2014. Let’s start with baby steps then — my goal for April is to send $500 toward my student loan debt.

April Goal #2: Add to my retirement accounts. I have been amazing at this in 2014. So as to not stumble, I’d like to set an aggressive goal of adding $2,200 to my retirement accounts in April.

April Goal #3: Finish my tax returns. Don’t even ask. This monster that keeps coming back from the dead….

April Goal #4: Keep adding to my emergency fund. I’m doing the 52-week savings challenge to plump up my emergency fund and it is going very well so far. For those out of the know, the 52-week savings challenge is one way to progressively add to an emergency fund over the course of the year, starting slowly, with just $1 the first week and $2 the second week.

I’d like to stay on pace to finish this. I think I’ll also do a blog post about it.

April Goal #5: Update my documentation for renters insurance. I have yet to update the pictures and receipts I’ve got stored away with my renters insurance in 2014. This is no good and I’d like to rectify that this month.

And those are my personal finance goals for April! What are you guys trying to accomplish?

My April 2014 net worth update; up $4,000 – April Fools edition

Welcome to April, everyone! It’s a new month, and a new chance to take stock of how my debt pay-down is going. It’s also a good chance to see how I’m doing on goals I’ve set for myself.

Net worth up by $4,000

Let’s take a look at the numbers first

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Click to enlarge

That top line number has been running wild in 2014. It’s crazy to me to think that my net worth has already increased by $16,500 this year.

However, the gains have mostly but it’s mostly come on the retirement savings side. My debt pay-down hit a speed bump this month, which I was only able to lower by $100 this past month, because I made some last-minute moves into tax-advantaged investments.

Now that tax time will finally be done after this month, it’ll be nice to be able to focus on paying down debt again.

Results of my goals

Goal #1: Pay down debt by $27,000. Off pace. Oh this is bad. Having paid off just $4,400 for the year, I’m more than $2,000 off the pace to hit my goal of paying off$27,000 for the year.

Goal #2: Increase retirement savings by $17,000. On pace. I’ve added $12,100 to my retirement savings already (which sounds crazy). I should be able to hit $17,000 by the end of summer.

Goal #3: Complete the 52-week savings challenge. On pace. I’ve kept up with the 52-week savings challenge which entails saving $1 the first week, $2 the next, and so forth. This past month, I transferred $9, $10, $11, $12, and $13 to my bank account. My emergency fund is sitting pretty at $5,091

Goal #4: Cut my spending on cell phone service. Pass. Oh, I passed this hard. I’ve added FOUR family members to my T-mobile plan now, bringing our average monthly bill into the $30s. By comparison, I was paying around $90 with Verizon.

Goal #5: Volunteer more. Pass! I’ve found some volunteer work I really love. I went into it in more detail in this post, but it can be summarized by saying that I help New York kids with math and help older folks get a little more computer literate — sometimes by helping them with accounting or budgeting. It’s way more fun than I anticipated and I’m looking forward to getting more into it!

And that was my March, y’all. Some wins, one big loss, but all in all, I feel like I’m making progress. How did everyone else do?

Negotiating the best price possible at the car dealership

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Source: John Lloyd via Flickr under a Creative Commons license

So, you’ve done the research of reading all the specifications and reviews out there to find the exact make and model of your next car, but are dreading the next part — haggling with a dealer.

Buying a car at a dealership can truly be a harrowing experience; here are some tips to make sure you get the best deal possible with minimal heartache, after you’ve decided what sort of car you want.

Finding the car

In this day and age, it almost goes without saying that you should start your hunt for the right car on the internet. Dealerships usually advertise very good prices online because they know that they have to appear cheaper than their competitors’ to get you in the door. Use the advertised price to give you an idea of what you’ll be spending.

You might even start negotiating with multiple dealerships online. This way, you have something in writing when you walk in.

But don’t just stop there, since you’re already on the internet, surf over to Yelp.com to read reviews on the dealership itself. Do they have a reputation for being shady?

And avoid add-ons, if at all possible! Dealerships may tack on accessories to add a layer of confusion and justify charging you more than the advertised price. “Oh, you researched that this car has an MSRP of $30,000?” They might ask. “Sorry, but our dealership policy is to add anti-rust under-coating since we’re in the Northeast — and it costs $1,200.”

This step is particularly important. Even if you know that you absolutely have to have certain upgrades — a better radio or spray-in lining for a truck bed or the aforementioned coating, for example — try to find a car with as few accessories as possible. You can almost always get these for less after you drive away from the dealership — especially when you factor in the aftermarket, third-party installers, or doing it yourself.

Test drive

Don’t feel rushed at all. Take a good long walk around the car, feel the fabric and the dash, and take a good listen while you’re driving.

I like to go to dealerships when the sun is shining (check the weather) because rain and the dark of night are pretty good when it comes to hiding imperfections.

A frugal tip: The sales representative may turn on the radio while you’re driving. You might just think they’re trying to impress you with the quality of the sound system. Before you start the engine, ask them, politely, to turn it off. Cars can vibrate, hum, whine, and let in road noise. That little bit of noise that you can barely hear over the radio on your test drive may be what drives you crazy down the road.

Keep every nick in the paint, whine from the alternator, and roughness in the interior, in mind for later when you’re going to negotiate price.

Negotiating the price

One big thing to keep in mind: The sales staff do this for a living, all day, every day. Regardless of whether you think they’re good or bad, honest or dishonest — remember that not only do they know more about the car you’re looking at, they’ve seen people in your exact situation a hundred times and know exactly what to say to get you going.

That said, there are some things that can help you be better prepared.

Have your own financing ready, but give the dealership a chance to beat it- Either be ready to pay with cash or get a pre-approval letter from your preferred bank or credit union beforehand. Then, if the dealership wants to discuss financing, you can try to get them to beat the terms you already have available.

Have other options for purchasing available- If, as mentioned before, you searched for other dealerships, you might already know how much you could get the car for elsewhere if negotiations fall through. This gives you a good idea of your “walking away” price — i.e. the price over which you can just walk away and head to another seller.

Negotiate on the price; do not negotiate on payments- Here is a conversation that’s happened millions of times in the history of car dealerships:

Dealer: So how much were you looking to pay per month?
Buyer: Oh, hadn’t thought about that. I guess I could afford $300 per month.
Dealer: Up to…?
Buyer: Oh…hmmm…I guess I could squeeze $350

In that scenario, the buyer will pay $350. Remember that it’s the total price that matters because that’ll be the starting principal of your loan. Click here to compare car loans. From there, the terms of your financing will determine how much you pay per month. Or better yet, you’ll pay $0 per month because you saved up enough cash to buy a car you can afford. In fact, that’s an even better idea — if a sales rep asks you how much you’re looking to pay per month, tell them “$0 per month.”

Know what manufacturer offers are available- Do your research as to which nationally available rebates are available. That way, you can negotiate on a price and then get the dealer to knock the rebate off that price. Don’t let them fool you into thinking they’re giving you that nationally advertised $2,000 cash back just out of goodwill.

Conclusion

There are many more facets to car-buying, of course — for example a huge part that I left out is getting the most for your trade-in — but hopefully this is enough to get you headed in the right direction. Negotiation and behavioral finance more generally are favorite topics of mine, so feel free to reach out if you want to chat more about this.

Remember, they do this every day, but also remember that at the end of the day, you have a common goal — you want to buy a car and they want to sell you a car. With a little preparation before the negotiation, you can still walk out with the best deal possible.

I made my own homemade laundry detergent to save money and pay down debt

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Source: Jes via Flickr under a Creative Commons license

“Gosh, that is expensive. To do 60 loads of laundry would cost $20!”

I was at the local grocery store a while back, reading a big bottle of Tide. Do the math and you’d find I was about to pay $0.33 per load for detergent, yet again.

Luckily, I was also one-third of the way through a series of thoughts, a series of thoughts that would change my life.

“It’s expensive, but what are you gonna do? There’s no substitute for store-bought detergent…. Or is there?”

I left the detergent on the shelf that day and made my way home to get to a computer with internet access.

Making my own detergent!

Apparently, I was not the first to have this thought as I found a number of formulas. Among the many, one seemed simple, oft-repeated (including here at The Simple Dollar), and intriguing.

I used just three ingredients:

  • 1 cup of washing soda
  • 1 cup of Borax
  • 1/2 bar of hand soap (Since a “bar” can be different sizes, I aimed for a cup of diced soap)

I got everything at the local grocery store, using a generic bar soap which seemed an imitation Irish Spring, and chose to keep everything dry, instead of making it soupy like others prefer. This required dicing the soap as small as it would go after grating it (You don’t know fun until you’ve used a sponge to clean bits of soap off a cheese grater!).

I put the mixture in an old jar I had saved that was big enough to hold the three cups the formula would yield, and gave everything a good shake before using it.

Does it clean?

My verdict? I don’t know how I would quantitatively compare this to store-bought detergent, but the clothes I laundered using two tablespoons of this stuff are visibly clean and even my once sweat-drenched gym clothes smelled fresh after a wash with two tablespoons. All in all, I am more than pleased with the results I get from this stuff.

But does it save money?

So it works, but did I actually save money? I had enough Borax and washing soda to make five more jars, which would also require another two bars of soap. Each jar is good for 24 loads, at two teaspoons per load. In total, that would be:

$ 4 Borax, one box
$ 3 Washing soda, one box
$ 3 Soap, three bars at $1
-------------------
$10 total, enough to make 18 cups of detergent powder

Those 18 cups could clean 144 loads, meaning I would be paying $.07 per load.

That’s about one-fifth the cost of the Tide I saw in the store! And it’s about half the cost of even the cheapest generic detergents!

And because I do a load of laundry a week, those savings really add up!

Sure, I might not get to carry around a professional-looking container nor do I get to brag about using the fanciest name brand detergent, but I’m more concerned with saving money and the amount I save goes straight to paying down debt.

Should you get life insurance for your elderly parents?

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Source: Dawn Ellner via Flickr under a Creative Commons license

Thinking about your own mortality is depressing enough. Thinking about your parents’ mortality might be even worse. However, it’s a fact of life that everyone dies and I think that we can all agree that it’s better to be financially prepared for it than to pretend it will never happen.

So, what does this financial preparedness entail?

Plenty of things, of course, but if your parents don’t have life insurance or funeral insurance in particular, then this could be a good time to discuss getting some. Here are a few factors to think about when deciding whether your parents need life coverage.

You rely on your parents financially

While most adults prefer to be financially independent and not have to rely on their parents for money, certain circumstances can prevent this from happening.

If you are out of work and can’t get a job, or if you are divorced and are having trouble getting back on your feet, or if you just don’t get paid enough to make ends meet, you could be relying on your parents to help you out financially.

If your parents were to die, would you be able to cope financially? If the answer is no, then life insurance could be a good option.

Your parents take care of your kids

Child care is expensive. Grandparents often take care of their grandkids to save on childcare costs. If your parents look after your kids so you can go to work, it’s worthwhile thinking about how much you would have to pay in childcare costs if your parents were no longer around.

A life insurance payout could help to cover those costs.

The loss of a pension

When a couple retires together and splits expenses (carpooling, for example), their combined cost of living is lower than if they were to retire separately. If your parents both have pensions coming in, they might be able live comfortably.

However, if one of your parents were to die, would the other be able to cope financially with just that one pension? Life insurance could help to cover the loss of that too.

Getting sick

Medical treatment can be expensive. If your parents get sick, would they or you be able to cover the cost of the medical treatment? Some life insurance policies offer early payouts on diagnosis of terminal illness, helping to cover that very expensive end-of-life care. Alternatively, the life insurance payout could also help to cover medical costs.

Covering funeral expenses

Funerals aren’t cheap. Coming up with the money to pay for a funeral could add stress to what presumably is already a very emotional time. Life insurance or funeral insurance can help to cover funeral expenses, making the process less stressful.

There are many options for older people looking for life insurance. Do some research to find out what’s available, and talk to your parents to discuss their options. Click here to find out what AAMI has to offer.

Is this tough topic something you’ve brought up with your parents? Was it awkward?

How rich are artists’ parents anyway?

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Source: Ian Sane via Flickr under a Creative Commons license

Don’t cheat and read ahead before wagering a guess!

In particular, compare what you would guess about the income of their parents to what you would guess about the income of the parents of accountants, programmers, and doctors. Where would artists’ parents fit in?

NPR’s Planet Money sought to find the answer in this recent post.

They chose as their methodology looking at data in this this longitudinal study sponsored by the U.S. government.

To work toward an answer, they pulled people across different professions from the database and compared their household income now (in 2010 which was the most recent data available) to their household income in 1979.

This is imperfect, of course, but let’s roll with it.

The results

The answer to my original question is of course…

The artists!

The category made up of designers, musicians, and artists (and etc) had parents who had an inflation-adjusted income somewhere between $65,000 and $69,999.

Accountants, auditors, computer programmers, and administrators had parents who made slightly less somewhere between $60,000 and $64,999.

Meanwhile, doctors, dentists, and surgeons had parents who made even less, averaging somewhere between $55,000 and $59,999 among the participants in the survey.

Check out the NPR post for the rest of the data.

Doctors and artists were the biggest outliers among the group when it came to deviating from their parents, in that doctors had middle class parents and made a lot more than them. At the other extreme, artists, on average, had (what I’d call) well-off parents and make a lot less than them.

Farmers and lawyers made up another set of extremes. Farmers (and their fishing and foresting brethren) had parents with the lowest incomes while lawyers of all stripes had parents with the highest incomes. Happily, both groups are doing better than their parents.

One of the more surprising outliers was police officers and firefighters. They came from low-middle class backgrounds but made quite a bit more than their parents. I won’t get deeper into it, but I can see why that would be the case.

Some thoughts

One of the first things I thought of upon reading this was this quote attributed to John Adams:

I must study politics and war, that my sons may have the liberty to study mathematics and philosophy, natural history and naval architecture, in order to give their children a right to study painting, poetry, music, architecture, tapestry, and porcelain

Of course, Adams was discussing professions on a national level, but I think it applies here. He’s saying that we follow something of a Maslovian hierarchy when it comes to professions — at first, we just want to stay alive, then we want to develop and grow, then we want to enrich our minds.

I’ve often pondered what it meant in the context of my own life since my parents studied and worked in math and I regressed — according to Adams — back to war and politics in school and in my first few jobs.

On the other hand, I’ve never even considered the art and music professions, almost seeing them as frivolous luxuries. As an aside, I love art and music, so I guess it has to come from somewhere

Anyhow, I thought this was interesting. Do you have any thoughts about it?