Sticking To My Budget

I follow a fairly strict Zero balance budget, which includes a weekly spending allowance. For all my cash expenses, meaning those expenses that are not paid through automated payments, I use a cash envelope system. These expenses include my weekly spending allowance, weekly gas budget and weekly grocery budget.

Since my paydays fall on a Friday, my week runs from Friday-Thursday. Yesterday (which was a Thursday), I was tested on my will to stick to my budget. I wanted to treat my son to Jamba Juice since he'd had a long week at school and I had to drag him to an event that I was working at for the evening. 

Of course, prior to going to Jamba Juice, I double checked how much cash I had left to spend for the week. I had $8.00 left in my weekly spending allowance envelope. From previous trips to Jamba Juice I knew that $8.00 wasn't going to be able to buy both of us our normal Jamba Juice order. (Small Orange A-Peel for him and a Medium Aloha Pineapple for me). I contemplated just getting his drink, but I wanted something to tide me over until we could get home and eat dinner. 

I could have taken out cash as an advance for my weekly spending allowance for this week that started today, but I wanted to stick true to my budget, especially since my purchase was more of a want than a need. Instead I remembered that you can get a large and split it into 2 small smoothies. This would only cost me $6.00 for both of our drinks. So I compromised to fit my budget and got a large smoothie of my son's favorite flavor that we split.

You can call me cheap, frugal or a penny pincher. However, I don't mind any of those names at all. I know that the behaviors that I practice today will help me to reach my financial goals and eventually financial freedom. 

So here are a few lessons from this short story that you can apply to your personal finances: 

1. Stick to a budget.
Take control of your money and don't let your money control you. You earned it, you tell it where to go and when. 

2. Use a Cash Envelope System to manage your spending.
By using cash you can visually see how much money you have allowed yourself to spend on certain things. If you just swipe your debit or credit card, chances are you will overspend and maybe even overdraw your bank account. 

3. Save where you can.
If I purchased 2 Small smoothies, it would have cost me about $9.00. Instead I ordered a large and had them split it in two for only $6.00. That's a $3.00 savings and didn't cause me to break my budget. 

4. Assess your purchases as a need or want.
Although to felt like I "needed" to have a Jamba Juice to tide me over until dinner, it was a want. I could have found something else to snack on that wouldn't cost me as much. However, since I'm pregnant, when I have a craving for something I tend to do whatever I can to get it. So I compromised and came up with a solution that was a win-win. 

5. Check before you spend.

I remember when I first started using an envelope system and I went to the checkout and realized I didn't have enough money. As embarrassing as it was to ask the clerk to take off an item or two, that mistake could have been avoided if I had just checked how much money I had before I started shopping.

Stay tuned for more blogs on Using an Envelope System. It's a lot easier than you think!

10 Credits/Deductions I Learned About While Doing My Own Taxes

Disclaimer: I am not a Tax Professional. Please see a Tax Professional for exact information regarding any Tax Credits or Deductions that may be applicable to your specific personal tax situation.

I have always done my own taxes, thankfully in all the years that Iʻve had to file my own taxes, the Internet was around to make it a lot easier. I remember when I was growing up, it was this time of the year my mom would take us to the public library, not for us to borrow books but so she could pick up the current years tax forms and instructions. Back then my mom would do her own taxes, but after awhile my parents started to use a professional tax service.

Online Tax Preparation Services make it convenient to complete your taxes on your own time. By doing my own taxes, I also have learned a few things in regards to what you can claim and what you can't claim. Here are 10 Things I've learned from doing my own taxes:

1. Savers Credit
If you contribute to your 401K, 403B or other similar retirement account you may qualify for a Savers Credit.

2. Child Care Credit
If you pay someone else to watch your child so that you can go to work or school, you may be able to write off those expenses. We sent our son to Summer Day Camp at the Kroc Center and he started attending A+ After School Program in the Fall. So we spent about just about $1,000 on child care costs. When I did input this tax credit information in to my taxes, my refund increased about $300.00.

3. Tax Preparation Fees
If you paid for tax preparation fees when you filed your prior years taxes, you may be able to write-off this amount as part of a Schedule A Itemization. For 2013, it was more beneficial for me to take the standard deduction. I spent on average $150-$200 to file my taxes in previous years because I do personal and business together. This year I discovered www.myfreetaxes.com and was able to file my taxes at no cost to me!

4. Lifetime Learning Credit
Whether you are in an Associates, Bachelors or Graduate program, the institution that you attend should supply you with a Form 1098-T: Tuition Statement. This can help to determine whether you qualify for the lifetime learning credit.

5. State of Hawaii - Refundable Food Credit
This credit is specific to the State of Hawaii Taxes. This is the first year that I noticed this tax credit when doing my taxes, and I'm happy that I did, because I was able to claim it for me and my son.

6. Charitable Donations
I try to do quarterly purges of clothes and items that we own and we donate to a local donation closet that serves those in need. I used www.itsdeductible.com to figure out the value of the items I donate and that is the amount that I claim on my taxes. In addition, I am able to claim all the donations I make to other smaller non-profit organizations as well as my Tithes to the church.

7. Car Registration Fees
Unfortunately for those of us who have their vehicles registered in the state of Hawaii we are not able to claim our car registration fees because they are determined according to the weight of the vehicle and not the value.

8. Medical Expenses -
If your out-of-pocket expenses for medical (including dental) is more than 10% of your adjusted gross income, you should consider itemizing your medical costs. 2013 was a pretty big medical year for us in regards to the amount that we had to pay that wasn't covered by my insurance. I started off the year at the hospital having gall bladder removal surgery, a couple months later I had to have a colposcopy done, then right after that I had my wisdom teeth pulled. And of course I started my prenatal appointments towards the last half of the year. And that was just my medical costs. We paid a lot for my son's medical and dental premium as well as having to pay for his tooth extraction, a spacer and a few fillings for cavities.

9. State of Hawaii - Car Seat
If you purchased a child safety seat, you can get a tax credit. Just make sure to keep your receipt because you have to submit it when you file your state taxes.

10. Miles Driven for medical purposes
I had always seen that I could claim the miles driven for medical purposes, like Dr's Visits, picking up prescriptions or trips to the Emergency Room. Even though I had a huge medical expense year in 2013, I did not track my mileage. Looking ahead at this year and the fact that I already have prenatal doctor appointments every 2 weeks and will have to travel from Waianae to Waipio for those appointments, plus giving birth at Moanalua Hospital and not to mention taking the baby to his well-baby appointments, I am making sure that for 2014 I am tracking my medical miles.

These are just a few of the things that I was able to claim for 2013 and ones that I can prepare to be able to claim for 2014. Knowing now, helps me to prepare and keep my documents in order so that come this time next year I will easily be able to file my taxes. Remember that I am not a tax professional and cannot offer any advice or information about the exact details of these credits and deductions.

Sinking Fund Approach for Vacations and Big Ticket Purchases

I'm pretty sure many of you have already started thinking about taking a vacation this year or maybe you are thinking about buying new furniture or other big ticket item. Whatever it is that you plan on buying, plan early enough where you don't have to use a credit card to make that purchase, and end up paying more for the trip than you should.

If you know my family well, you know that we travel quite frequently (especially Sam). In the past 3 years we have been blessed with the opportunities to travel all over the country as well as a nice little vacation in the Bahamas. Although for most of these trips we did not have to pay for the travel expenses (airfare or hotel) there were a few trips that we had to fund ourselves and even if the airfare or hotel were paid for, we still needed money to eat, ground transportation, for entertainment, and of course to shop!

Sinking Fund Approach
When planning for a trip or to purchase a big ticket item (meaning costing more than $500.00) I ask myself these three simple questions:

1. How much money do I need?
2. How long do I have to save it?
3. How much do I need to save each month?

This is called the Sinking Fund Approach.

Sinking Fund Approach Example
Let me share an example with you:

This year in August, we have a family reunion to attend on Hawai'i Island. Which means we need airfare for three (thank goodness the new baby will fly for free), we will need hotel/vacation rental accommodations for 4 nights, car rental for 5 days, money for food, entertainment, etc. I did a little preliminary research to find out how much all of this would cost and this sets our baseline budget. If I am able to find better deals from now to then great, if not then I have to adjust our budget to accommodate.

$525.00 Total Airfare Cost for Three Round Trip Tickets
$400.00 Total Hotel/Vacation Rental Accommodations for four nights
$350.00 Total Car Rental for five days
$250.00 Total budget for food, entertainment, and misc. expenses
----------
$1,525.00 Total Trip Budget

This answers the question: How Much Money Do I Need?

From now until the trip, we have six and a half months to save. So, this answers the question: How Long Do I Have To Save It?

Now to answer the final question: How Much Do I Need To Save Each Month? It's simple math (and I almost always use a calculator) Divide the total amount that you need by the amount of time you have to save it.

So for this example:

$1,525.00 divided by 6.5 months = $234.62 per month

Next Step: Savings Plan
Now that I now how much I need to save each month to be able to go on this trip, I need to make a savings plan. We already operate on a zero-balance budget, which means we allocate every incoming dollar to pay a bill, living expense, or to pay down any outstanding debt. Now how can I squeeze $234.62 out of our monthly budget?

To make this amount easier to swallow, I like to break it down to smaller amounts. To achieve this savings goal we need to save $59.00 a week or about $8.50 a day. Now that amount doesn't seem so bad when you look at it this way. We now have to look at our current savings as well as other opportunities for us to earn/save money (i.e. garage sale, selling old items on cragislist, couponing, etc.) in order to save the amount we need by the time the trip comes up.

Other things to consider, especially when it comes to travelling is booking reservations early enough to save money. As we save the money needed for each travel expense we will book the reservations. For example, in about 2 and a half months from now we will have enough to book our airfare, which is a good amount of time to still get a good deal.

Don't Resort to Using A Credit Card
As easy as it would be to swipe our credit card and just pay for the it and get it over with, we have other financial goals that will be affected if we do that. And no vacation or TV is worth pushing back our goal of owning a home this year. It's all about opportunity costs, we know we want to go to the reunion, so when it comes down to spending money from now until then, we have to ask ourselves do we buy this item that we kind of "want" or do we save the money to put towards the trip.

So start planning for those larger purchases early and try the sinking fund approach for your next vacation or big ticket item purchase.

Ways to Prepare If You Owe Income Taxes

Special Edition: Tax Time Tuesday

 

As W-2's and other tax documents start coming the the mail, it's that time to begin thinking about and completing your tax returns. I am not a tax professional, however I wanted to take some time to share some smart ways to use your tax refund this year or offer some advice on how to tackle a looming tax bill.

If you owe taxes for 2013: 

No one wants to have to write a check to Uncle Sam, however there are times where it is necessary. One of the most common reasons people owe taxes is because they have an increase in income and do not adjust their withholdings to accommodate for being in a new tax bracket. Another common reason is that the income received is not taxed at the time it is paid out, therefore leaving you with the taxes to pay when it comes time to file your taxes. 

As stressful as having to pay taxes is, you don't want this tax obligation to loom over your head and cause prolonged stress over an extended period of time. For 2012, We had a fairly large tax obligation, which we knew would be the case. As network marketers the income you make is not taxed when paid out to you. As an independent consultant it is your responsibility to pay the taxes. We knew this of course and started to put a portion (about 20%) of the checks into a savings account so that we would have the money to pay the IRS when tax time came. However, we were not diligent with our finances during a period of the year and had to dip into this savings to pay for other things. This left us with a smaller balance that we knew would not cover our entire tax bill.

When we figured out how much we owed, we paid as much as we could, but that still left us with a large amount outstanding. We applied through the IRS to make incremental payments over the course of 6 months. We buckled down and revised our budget to be able to pay off the large tax debt in about 4 months. We were happy when that was over and hope to never have to experience that again.

Ways to prepare for an overwhelming tax obligation:

Being proactive with your finances is a great way to keep your money in your control and not in the control of others. Here are a few ways that you can prepare yourself for an overwhelming tax obligation  in future years.

1. Pre-Pay the taxes quarterly through the IRS. We did this option the year prior and this helped reduce our tax obligation. If you anticipate that your income will be the same or higher in the next year and you know you will owe taxes, the IRS will estimate the taxes owed for the next year and break that up into 4 quarterly payments throughout the year.

2. Put money away through the year. When you receive an income where the taxes are not taken out automatically, it is smart to put a percentage of that check away to be able to pay your anticipated tax obligation. Depending on your tax bracket, you want to put away anywhere between 10-30% of your income away.Be smart and don't dip into this money. Even if you don't owe as much as you have saved throughout the year, think of that extra money as your tax return.

3. Adjust your withholdings. Again, I am not a tax professional, but if you sit down with one and show them your situation, they can suggest what to claim for your tax withholdings if you receive income that is taxed at time of payment.

Join me on the next Special Edition: Tax Time Tuesday blog where I will discuss smart ways to use your tax refund.

(Hint: I will not suggest taking a trip to Vegas or buying a brand new big screen TV!)

How I feed a family of 3 on a $50.00 Weekly Food Budget

I posted this money saving tip on my FaceBook and was asked how I am able to feed my family of 3 breakfast, lunch & dinner on a $50.00 weekly food budget.

So here is how I do it. 

1. As mentioned in the FB post, I plan my meals around what is on sale. For example, if there is a really good deal on Chicken Thighs then I make sure to plan a meal using chicken thighs. 

2. I make one dish last for several meals. With the chicken thighs example from above, I will make enough let's say Shoyu Chicken to be eaten for dinner the evening that I cook it, lunch for me and Sam the next day as well as dinner for all 3 of us the next evening. Sometimes I'm lucky enough to squeeze another lunch for at least me for an additional day. I also try to keep the cost of one dish around $15.00 and no more than $20.00. 

3. We never skip breakfast and I try to keep it simple. Since my son's school is not close to our house, Sam and him have to leave at 6:30am to get to school by 7:45am. Which means I don't have a lot of time to cook breakfast for my son, however I do let him choose what he'd like to eat. A typical breakfast on a weekday is anything from Cereal, pancakes, eggs/rices/spam, or an egg and turkey bacon breakfast sandwich. 

4. The fact that we are promoters of Visalus, helps out a great deal, although even without it I don't see us spending any more on our weekly groceries. We get our meal replacement shakes for free because we shared our challenge with 3 of our friends who also are on the challenge. This is what Sam normally has for breakfast and a snack or post-workout meal and our son chooses this as his breakfast choice sometimes as well. If we have to buy any ingredients for the shakes it's mostly almond milk that we purchase in bulk from Costco that lasts awhile. Note: After I have the baby, I will be jumping back on the challenge full time, which may help us save a little more since I'll be replacing 2 meals with the shakes. 

5. I challenged myself to doing a Financial Fast at least 2 days a week. This helps keep me from buying lunch during the week for when I'm at work and forces me to prepare lunch, which if it's not leftovers from a previous night's dinner then I make a sandwich or a quick pasta to take to work. Sometimes it's hard when I see a co-worker pick up a plate lunch or fast food for lunch, however if I bring my own lunch it's typically healthier than buying food elsewhere. 

6. We don't qualify for free or reduced lunch for our son. So we let our son pick and choose which days he brings home lunch and which days he eats school lunch. (Note: our $50.00 grocery budget a week does not include any school lunch that he eats, which if he ate all 5 weekdays would cost us $11.25 a week). On the days he brings home lunch, he has a choice of chicken nuggets, pizza rolls or a cold cut sandwich. He typically take home lunch 2-4 times a week. We put $50.00 on his lunch account at a time and that lasts him 2-3 months. 

7. Although I stick to a strict budget for our groceries, I always try to include some kind of treat, such as ice cream, cookies to bake as a family, or since it's been cold lately hot cocoa and marshmallows. 

8. Lastly, I take advantage of store ad prices and reward card programs. I typically shop at either Tamura's to support local, Sack-N-Save/Foodland (using the Maika'i Rewards Card) and Safeway (using the Safeway rewards and personalized deals that you add online). I look at all three ads prior to meal planning and look for which store has the best deals. I make my list for one store only. Instead of wasting time, money and mileage on going to multiple stores I shop at only one store for the week. 

I would probably save a lot more money if I was an extreme couponer, but this system works for me and I still save money by trying to buy mostly what is on sale. 

Other ways you can save lots of money on groceries is by growing your own vegetables and fruits as well as fishing or hunting for your protein. Once in awhile we are blessed with vegetables, fruits or fish from friends and family. And this helps out on the grocery budget a lot. 

My weekly grocery budget will have to be changed once the new baby arrives and starts eating food other than breast milk. But as I did with our first born, I will make my own baby food. But I don't anticipate having to adjust our grocery budget any more than $10 a week to feed an extra mouth. 

We do eat an occasional meal out, the money that we use for those meals comes from our weekly spending allowance that both Sam and I have each have. We try to plan a meal out based on our always busy schedules. 

If you have a larger family, I would suggest doing a monthly bulk shopping at Costco or Sam's Club and supplement with once a week shopping at a smaller grocery store to buy the things you can't get at a Warehouse store. 

The Hidden Paycheck

In a previous blog I wrote about the importance of knowing and understanding your income. A part of being able to understand your income is to know and be aware of your "Hidden Paycheck." A hidden paycheck includes your hourly wages or salary along with the other benefits that your employer provides.

The past 2 companies/organizations that I have worked for have been very transparent with the benefits and the costs associated with those benefits. In my previous job, we would receive annual "Hidden Paycheck" statements that would outline what our total compensation is worth for that year. In my current job a couple years ago, we received a Benefits Statement that outlined all of our benefits, including cumulative benefits that we have received over the length of our employment.

As an employee, this is beneficial to me because although sometimes it seems that the pay isn't that great, when you see all the other compensation that you are receiving, makes you realize that your employer is taking more care of you than you think. For employers, it is beneficial because it shows your employees the amount of money that is spent on each employee above the traditional paycheck.

The following is a list of some of the benefits that are included in a Hidden Paycheck:

The list continues of different benefits that you can receive from an employer. The ones listed above are some of the common one's and one's that I have personally received over the course of my employment at different companies/organizations.

To illustrate let me provide an example:

Let's say your hourly wage is $14.00/hour. Which means your annual base salary is $29,120.00.

In addition to that your employer pays 100% of your medical insurance premium which costs $290.00 per month. They also cover 50% of your dependants costs for medical insurance premium which costs the company $145.00 per month. This totals $5,220.00 that your employer pays for your medical coverage.

Your employer also provides life insurance that has a coverage of 2.5 times your annual salary if you were to die unexpectedly. Your coverage would total $72,800 and the yearly premium costs the company $150.00 a year.

Your employer contributes 5% of your wages into a pension plan for you regardless of whether you make personal contributions or not. The company pays out $1,456.00 a year on your behalf towards your retirement plan.

To keep this example simple, we will leave the company sponsored benefits to these three areas. So although your paycheck will say Gross Pay = $29,120.00 the company is actually spending a total of $35,946.00 a year to keep you as an employee. When you calculate this to an hourly wage you are actually making $17.28.hour.

When you look at your income from this point of view, it looks a lot better. You may feel less taken advantage of by your employer or it may reveal that you truly are not being paid the amount that you should be based on your experience, education and skill set.

Keep in mind that not all employers will be transparent about all the benefits that they provide, but there are ways you can estimate your Hidden Paycheck. Take some time to figure out your "Hidden Paycheck" this can help you evaluate if you are being compensated enough or too little and can help you make decisions especially when thinking about finding another job. Your next job may pay you $16.00/hour but not provide any benefits, meaning although it looks like you are getting a raise by changing jobs, in reality you are taking a pay cut because you are losing out on other benefits that are paid for on your behalf.

Knowing and Understanding Your Income

I work with families that come from all income levels, and I often have to ask them what their estimated annual gross income is, so that I can check eligibility requirements for different programs and services. It amazes me how many people do not know what their annual income is. If they don't know their annual, then I ask for their monthly and simply multiply it by 12 myself. However, many times they still do not know what their monthly income is.

Being in control of your finances starts with KNOWING your finances. In order to be able to make sure that the money you have going out to pay bills, go shopping, save, and invest you need to know how much is coming in.

Even if you receive government assistance or other forms of income not from a traditional paycheck, you should still consider that monies as income. For IRS purposes, you do not have to include SNAP (food stamp) benefits as income. However, for the purposes of understanding the inflow and outflow of the money you spend, it is important to include SNAP benefits when doing your monthly budget. The benefit of receiving monies for your groceries through SNAP is meant to be temporary. Meaning, when you no longer qualify for SNAP benefits, you will need to budget in grocery monies from your income. Better to practice now, than to be in the dark when you have to start paying for your groceries without any assistance.

Many people get confused with Gross and Net Income. Here is a little breakdown to help you understand the difference.

Gross Income is the amount that you make before any tax or other deductions are made. For example, if you work a full time job at $14.00/hour then your annual gross income would be:

40 hours per week x $14.00 per hour x 52 weeks per year = $29,120.00

 

Net Income is the amount that you make after taxes and other deductions are made. Common deductions that are made from a typical paycheck are Federal Taxes, State Taxes, Health Care Premiums, Flexible Spending Accounts, and 401K or other retirement plans. In other words, net income is the amount that you take home or the amount you see on your paycheck or through direct deposit.

 

Be aware of your gross and net income. Understand the deductions that are taken from your gross pay. Know your income so that you can control the outflow of money. Smart money management begins with making sure that you don't have more money going out than you have coming in. And the only way you will be able to do this is to KNOW YOUR INCOME!