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I’m Already Thinking of 2006 Tax Returns, Are You? July 31, 2006

It may seem a bit early to think about your 2006 tax returns, but by the time you realize, the end of the year will come faster than you had thought. But there are some things you can do now to help make it easy on you (or your accountant) come tax day in April, 2007.

I can’t believe that 2006 is 60% done!:

For me, the end of July is a good time to think about my mid-year financial picture. It helps me assess what I’ve achieved and what I need to do in order to reach my financial goals. Here are some of the financial items I think about in July for the end of the year preparation.

  1. Review 2006 income/salary (and how am I going to bump that number up?)
  2. Compile tax deductions for 2006 by keeping a 2006 tax file
  3. Review 2006 expenses and find areas to cut
  4. Create and review 2006 income statement (aka profit and loss statement, or P&L)
  5. Create and review 2006 balance sheet

I try to think of my financial picture like a business. Think of the balance sheet as the ultimate scorecard for your “business” at a fixed point in time (mid-year). The income statement shows money in (income, revenues, sales) and money out (expenses, costs) over a period of time, while the balance sheet is based on this equation: Assets = Liabilities + Equity. These two are really needed to understand the current and future conditions of your business.

I have to admit I still have to create my income statement and balance sheet, but it shouldn’t be too difficult since I’ve compiled my year-to-date information in a folder.

The Wedding is For the Bride So Should She Pay for Her ‘Portion’? July 27, 2006

Weddings are great, but we all know that the bride is the focus of the weddings. If that’s true, what are bride’s costs vs the groom’s costs? I was reading the NY Times article about rising costs of weddings, and some additional costs in some weddings now add up to a lot. The one example that was given was that one bride wanted to release butterflies at the reception ($10,000 cost), but unfortunately, when released, they flew into a light installation that burned them and hundreds of them fell on the dance floor. It would’ve been a pretty sight in theory, but would you spend $10k on butterflies for your wedding? According to the NY Times, the average American wedding now costs $27,852, almost double the $15,208 spent in 1990, according to a study by the Condé Nast Bridal Group.

I’ve been happily married for three years. For our wedding, we spent $26,421, just under the average wedding today. I revisited our spreadsheet and my wife broke out the wedding costs between his, hers, ours. Here’s the breakdown:

I didn’t even notice that there was a breakdown, but it made me think about this. We both split the costs, so it didn’t even occur to me. When couples get married, everything is a joint cost, but there’s so much more to get for the bride:

For the groom:

Everything else you either own already or can borrow from someone (cufflinks, etc), and tell your groomsmen to wear their own black suit. Our joint expenses included the music, photographer, rehearsal dinner, invitations, marriage license, venue. So to answer my own question up above, to be fair, the wedding costs should be split equally, unless the parents want to impress their closest 200 friends (which didn’t happen for our wedding, thank god!). But brides need to think about so much more to look good for the groom. But if she’s looking good for the groom, shouldn’t the groom pay for it all? Now I’m talking in circles, but you get the idea.

Source:
To Avert a Fractured Fairy Tale, a Wedding Planner, NY Times, Published: July 23, 2006

List: US States Income Tax and US States with No Income Tax July 26, 2006

List: US States Income Tax and US States with No Income Tax
The following states levy no income tax on earned income and no income tax on unearned income (interest and dividends):

The following states levy no income tax on earned income however they do levy income tax on unearned income (interest and dividends):

The following states levy the following MAXIMUM income tax as of January 2005:

Re- Re- Refinancing Home Loans to Keep Payments The Same July 24, 2006

I think I’m partially crazy for taking on a 30% debt-to-income ratio by buying a home in New York City. But if you read the NY Times article yesterday about people refinancing their mortgages before their adjustable-rate mortgages reset just to to keep their payments the same, I think it’s time to say that a lot of people are just delaying their debt drowning.

Millions of Americans have turned to adjustable-rate mortgages to afford a home as prices soared. But when you don’t plan for the ARM interest rates reset when interest is rising, it’s time to start living below your means. The artificially low teaser rates are attractive when you think you might not stay in your home for more than 5 years, but you never know what your financial circumstances or housing market will be like when your interest rate resets. People who are refinancing and re- refinancing are just building up their mortgage with closing costs and delaying a possible financial meltdown. We all would like to assume that we’ll be making more money in a few years or that we can build up enough of an emergency fund, but anyone who doesn’t have a trust fund can loose their income. I try to make myself useful at work, but we all know that employment is an at-will term, which means the company can fire me or I can quit at anytime. Even if you have your own company, business can slow down. I know I’m not indispensible, so I’m trying to build up my cushion. Don’t you get nervous when you read articles like this one and the person they interview says:

Still, borrowers like Mr. Perry say the loans make sense because in a few years they plan to move to another home, earn more or refinance again, often using the same assumptions they made when they took out their earlier loans.
…“I am not going to be here for 30 years. Why is it important to have a fixed mortgage?”

If home prices keep rising, maybe this won’t matter in 5 years, but what are the chances they keep going up like they have been in the past 5 years? (Looks like there’s about 50% of all loans in major California cities in 2006 are negative amortization mortgages. What will happen in 2010? Scary thought. Check it out in the article).

Source:
Re-Refinancing, and Putting Off Mortgage Pain, NY Times
Published: July 23, 2006

I Used to Be Drowning in Debt July 21, 2006

I used to be drowning in debt and paid hundreds and hundres of dollars (who knows, maybe a thousand?) a year on credit card interest rates. Until one day, it just dawned on me that unless I changed my lifestyle, I would not only be treading in debt but the credit cards would slowly pull me under, until one day, I’ll drown and not be able to come up to gasp for air. I’m not sure what it was, it was just a sudden decision to not spend anymore, not worry about what other people thought of me, not worry about labels on clothing. When you’re young (16-25), what matters to most is what other people think of you and being accepted…and I’m a pretty self confident guy. Now that I’m in my early 30s, I don’t think about how other people look on the surface, but who they are. I hate the idea of “keeping up with the Joneses” because that’s essentially what I was doing when I was young. I tried to keep up with the rich kids who had trust funds and bought expensive meals, went on weekend trips to Vegas, and had supposed high profile jobs.

I spend every extra dollar on credit card payments and it didn’t seem like I was making much progress. When I realized that I was paying down a $1000 on cc payments but just treading, it was time to change. Paying down $1000 and not spending anything got me back and after years and years of almost drowning, I finally was on dry land.

For many Americans who are drowning in debt who are trying to keep up with everyone else around you, stop thinking about how other people judge you. Because the you’re the most important judge of yourself, not the dude who has a BMW 650i with the 18″ rims or the 16 year old whose parents throw their child a $100,000 sweet 16 party who thinks you’re lame because you don’t wear True Religions or own the latest Botkier Bag.

IT Workers, What Do You Make? July 18, 2006

Are you in IT? How much do you get paid? This is the question, someone asked on The Joel on Software Group. The thread got Digged as well. It’s an interesting peek into IT salaries. People have submitted their anonymous salaries (some post fake salaries), and in general, people who have been in the industry for approximately 10 years can make $100,000 per year.

base salaries for Sr Developers in NYC range from 90k - 120 k. In the financial industry, you’re looking at a 20% bonus at least.

What I found amazing was the difference in pay among those who worked for a big company, and those who did their own thing.

There’s a range of job descriptions, from a software architect at Google to developers in India:

Experience: 4 years
Education: BS Computer Engineering
Certifications: No
Company: Google
Title: Software Architect
Location: MountainView, CA
SALARY: $165,000 + 20K Stock option @ $85.00 [That’s $1.7mil!]

Experience: 6 & 1/2 years
Education: some college
Certifications: none
Company: Large well known public company
Title: Team Lead
Location: Bangalore, India
SALARY: $17,000 a year

The danger of posting all these is that this is not a scientific poll, it is probably not very accurate, and entry level staff feel like they are not getting paid enough. There’s more to a job than salary. Living expenses in your area, benefits, flexibility, and education have to be accounted for. Are you surprised by IT pay?

The Frozen Drink Non-Latte Factor July 12, 2006

If you’ve been to Starbucks, Dunkin Donuts, Jamba Juice, Amazon Juice, Cold Stone Creamery, and many other eateries lately, you’ll notice that there’s a barrage of new drinks (usually frozen, since summer has arrived) to get the consumer to have more trendy drink options. It’s the Latte Factor of the frozen summer drinks. I love frozen things; ice cream, slurpees, slushes, smoothies. I even chill my water in the freezer and will create a ‘water slush’. And these coffee shops, cafes, and smoothie places make it hard on a frozen drink lover who’s trying to save money. So far I have not tried any of these because looking at the prices is a deterrent. Some examples:

If you buy one frozen drink a week at $5 (with tax), it adds up to $20 per month. I know, the 7/11 Slurpees are cheaper at $1.65 but you’re essentially drinking frozen sugar water. As an alternative, blend your own smoothie at home. There are tons of recipes online. They’re easy to make, cheap, and you can make them with any fruit, and it’s healthier than the store bought ones because it has less sugar. Buy frozen bags of fruit at your grocery store and mix and match.

Source:
Fruity summer drinks are a tropical paradise of profit, By Bruce Horovitz, USA TODAY

What’s Your Nest Egg Ranking? July 7, 2006


That’s my score up there according to a new online calculator from A.G. Edwards that lets you figure out how well you are building wealth vs. the rest of the U.S. public (nesteggscore.com). According to the site, the national average is 631, a ‘fair’ ranking:

The 14 question survey told me that I have a score of 748, which gives me a Nest Egg Score ranking of “Good”:

You’ve done a respectable job of saving up to this point in your life. To improve your Nest Egg Score, you should focus on saving more — especially for retirement — and reducing debt, such as paying down credit cards or building more equity in your home (if you own one).

The scoring factors in age, housing, investments, and location (cost-of-living). With my ‘Good’ ranking, their suggestions are:

  1. Continue to manage debt.
  2. Maximize your retirement contributions.
  3. Consider your other financial goals.
  4. Review your investment mix.
  5. Create or review your estate plan.

While the suggestions sound like standard retirement planning advice, the scoring is an interesting indicator of how you’re doing. If I took this survey 3 years ago, my score would probably have been much lower. Since then, I’ve contriuted the maximum allowed in my retirement accounts, spent less than I make, and saved up to purchase real estate. How are you scoring?

Apple.com refurbished deals July 5, 2006

Here’s an idea for those of you who are looking to buy iPods and Mac computers. You can buy refurbished products for great prices. I never thought of looking for this, and would consider it if I ever need a computer. Some sample prices:

These are current Apple models, includes free shipping and Apple’s one year warranty. Dell also has their outlet section for reduced PC and accessories prices. So if you’re looking for a way to save on your computer purchases, buying refurbished or outlet prices might be worth looking into.