What, me budget?

Yes, you.   We all should.  Some expressions:  failure to plan is planning to fail or without a goal, wherever you end up is your goal.

My favorite budget guidelines have always been Larry Burketts, Money Matters , financial planning guidebooks.  In the referenced tribute to Larry, his philosophy of money is reflected:

One of the central principles Larry taught is that we don’t really own things; we are simply stewards and managers of what God has entrusted to us.

There are many budget preparation guidelines, but I’ve always liked the ones provided by what is now Crown Financial Ministries.  Here is a link to Crown’s Suggested Percentage Guidelines for a Family of 4 (High Housing Cost Areas) (since I live in Austin!).  There are also guidelines for singles, single parent, couples, etc.

Important to note is that these budget guidelines start with gross income so that a tithe comes off of gross.  No funny business about giving on net or gross.  I’ve heard other financial planners say that wherever you give your money, if you can’t live on 90% of your income, you have a problem.

The next reduction is for taxes.  If you are an employee, you can use the amount withheld for taxes from your paycheck.  Be careful not to have too much income tax withheld.  It’s better to pay a $1 than to let Uncle keep your money for up to 16 months!  If you are self-employed, you can look at the total tax paid on your prior year return.  Taxpayers think that they are saving money, but in fact, saving a little money each month in a savings account generates more savings than the “income tax withheld” savings account.  The tendency is to spend that tax refund impulsively rather than putting it into savings for planned spending.

After the reductions for both giving and taxes, then you compute your budget percentages.  Your budget is based on your spendable income.

As you complete your budget, remember that many employees have additional reductions in their pay that need to be considered as you budget:  health insurance premiums, 401(K) contributions,  day care tuition, etc.

I started a 30-Day Diary to really check in with how I spend money on a daily basis.  My dad (the first Newby CPA) used to keep a notebook in which he recorded all cash expenditures for the day.  What discipline!  Join me in the goal of tracking out of pocket expenditures (so to speak!) for 30 days.  Let me know how you do.

 

 

 

 

 

 

Inspirational Financial Quotes

From a great blog called:  Pick the Brain.

“Worry, like a rocking chair will give you something to do, but it won’t get you anywhere.” – Vance Havner

Most of us are guilty of worrying about money, and whilst it might be justified in some circumstances, the actual worrying won’t solve any problems – and worse still, it can be bad for your physical and mental health.

 

Another rule that I have:  Be kind to yourself.  It’s hard to get out of debt faster than you got into debt.

 

 

 

States’ Busted Budgets Not Caused by Union Pay

This is what David Lenohardt wrote in the NYT on March 1. His major points:

Government workers receive compensation that is similar–with somewhat lower salaries and somewhat better benefits on average–to that of private sector workers with similar qualifications.

Government pay is skewed too heavily toward pensions and health insurance.

Health plans for union workers and retirees are much more likely to require little or no co-payment, which leads to lots of medical treatments that don’t make people any healthier, and to huge costs.

Many government workers receive pensions that start at age 55 and still let retirees draw a full salary elsewhere.

Only recently have teachers’ unions started to cooperate with serious efforts at teacher evaluation, and they are still not giving their full cooperation.

The cause of our looming federal and state deficits . . .is Americans’ collective desire for low taxes and generous government benefits. . . Eventually we will have to pay for the government we want.

I have a friend that retired from the state, receives his pension, and was rehired as a contract employee by the same agency:  working full time and receiving his pension from the same agency.  Texas has a defined benefit retirement plan so that retired employees receive a guaranteed benefit rather than a value based account as in a typical 401K account. Steven Greenhouse discusses the differences between retirement plans.

In Texas, the Margin Tax and a cigarette tax were supposed to make up income deficits created from reducing the property tax , and to date, the Margin Tax has  increased revenues modestly but not at the levels expected at enactment.   (David Gilliland, Texas Margin Tax).

One result for Austin has been the expected layoff of 1000 teachers and the expected closure of exemplary inner city, low income schools. ( AISD News Release)

The Rainy Day Fund Will Be Used

The Texas Society of CPA’s reports:

There are enough leaks in the Republican dike against using the funds to burst the dam.  While Gov. Perry has not changed is opposition to using the fund, this week added to the number of Republican leaders who say the funds must be used.  Last week we reported that Appropriations Chair Pitts (R-Waxahachie) said he had the votes to use the fund on his committee and this week Sen. Finance Chair Ogden (R-Bryan) said “We’re going to have to use a substantial amount of the rainy-day fund if we’re going to pass a budget.”   While neither of these chairmen have the final say (it takes a three-fifths vote of the legislature to use the Rainy Day fund), there is growing Republican support as budget hearings continue to spell out the results of proposed budget cuts.

I wrote the above paragraph Thursday afternoon.  This morning the Tea Party Caucus Advisory committee came out with strong language opposing the use of the Rainy Day fund in a letter to legislators saying, in part, “We strongly support a budget that is balanced without the use of any portion of the State’s Rainy Day Fund and without the imposition of new taxes, new fees that are effectively increased taxes (such as increased vehicle registration fees) or other new sources of revenue (such as gambling).”   According to Jason Embry writing in his First Reading blog, “This is a very significant development. The Tea Party Caucus Advisory Committee consists of 13 tea-party organizers from around the state. They serve as a liaison back to the tea parties for the Tea Party Caucus, which consists of about a third of the membership of the House and two senators. “

Sales Tax Deduction on Large Purchases-Easily Overlooked

Taxpayers that elect to deduct sales tax instead of income tax paid typically use the sales tax deduction calculator to calculate their deduction instead of saving receipts and totaling the sales tax paid.  An easily overlooked deduction is the sales tax paid on large purchases that may be added to the amount computed with the calculator.

Large purchases include:

  • A motor vehicle (car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle) whether purchased or leased.
  • An aircraft or boat.
  • A home (including a mobile home or prefab home or a substantial addition to or major renovation of a home) with certain restrictions.

Small Employer Health Insurance Credit

Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, 2010, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

Here are answers to frequently asked questions about the credit.

Closing in on the Repeal of the 1099 Requirement

The Senate approved an amendment Wednesday to repeal the expanded 1099 information reporting requirements in the health care reform law.  The repeal of the 1099 reporting requirements enjoys broad bipartisan support.   The requirements, which were included in the Patient Protection and Affordable Care Act (commonly know as the “Health Care Reform Bill,”  would have required businesses to report to the Internal Revenue Service any purchases of goods and services over $600 a year from another business or individual.

In the past, the battle has ensued over how to pay for the measure and cover about $19 billion in estimated lost revenue.   To avoid adding to the budget deficit, the amendment authorizes the director of the Office of Management and Budget to cut unnecessary unobligated spending, but exempts the Social Security Administration’s administrative expenses from being cut.

IRS Goes Social

I think this is hilarious:  The IRS Goes Mobile With IRS2Go.  You can check your refund status, get tax updates, and, the hilarious part, follow  the IRS Twitter news feed, @IRSnews.   IRSnews provides the latest federal tax news, including information about tax law changes and important IRS programs.

Although this is all very convenient, and I probably sign up, will IRS want me to “like” them on Facebook?

Information Reporting for Rental Income

As of January 1, 2011,  persons receiving rental income from real property have to file information returns (Form 1099-MISC) to the Internal Revenue Service and to persons that provide services for which they receive payments of $600 or more during the year for rental property expenses such as repairs and maintenance.

Form W-9 is available to give to service providers.  I recommend obtaining the W-9 before paying the provider unless it is clearly obvious that payments will not exceed $600 for the year.  Hear’s a comprehensive article in the Journal of Accountancy.