I recently explained my history of having no money and as promised, will now come clean with the mistakes I’m still making:

I’m driving the wrong car

I’ve never owned a car long enough to get it inspected. The first Jeep Cherokee was a lease, and I foolishly let them talk me into not converting the lease into a purchase. Then I couldn’t afford the new Jeep Cherokee, so I took it back and they gave me a Dodge Neon with a loan amount equal to the price of the Neon plus about $6,000. Then I crashed the Neon. That was actually okay, but only because I had Gap Insurance. Always get Gap Insurance, friends. It literally saved me from being homeless.

Years later I got a Scion xB. That thing was delicious, but I grew ever more jealous of my wife’s Prius, so I traded up and got one of my own. Sometimes I wish I hadn’t done that, because I now have a $595 monthly car payment. I know it doesn’t equal out, but it sure feels good to fill the tank only once every two weeks. I’m taking care of the Prius the way I forgot to with the Scion, and I fully intend to drive it until it won’t drive anymore. I think it’s due for inspection sometime this summer.

I love shiny electronics, and they love me

Like most geeks, I have a rapport with computers that is difficult to establish with other humans, and I tend to hoard sources of entertainment. Gadgets are an expensive hobby. It never seems that way to read about them, because the journalists get them for free. I have to remind myself of that. As an Interaction Designer, I’m always looking for a more elegant solution, for more ways to automate my life, and I can rationalize any purchase by telling myself that exposure to these things will help me in my career.

That’s how I managed to “buy” an iPhone. But as you’ve guessed, I put it on a credit card. Nearly everything I own that is worth something was put on a credit card. But I’m committed to stopping that. As of this writing, I have just over $7,000 in credit card debt, which I expect to have paid off within the next 16 months.

So, I have to keep telling myself that I don’t literally need an Apple TV, or a 1 Terabyte external hard drive. When I force myself to think about it, there’s nothing in the entertainment compartment of my lifestyle that is actually broken. It’s just not perfectly elegant, and for right now, because other things are broken, that’ll have to do.

I don’t sell enough of my stuff

When I upgraded my iBook to a new MacBook last May (see previous problem with shiny electronics), only about $1,000 of the purchase went on a credit card, ‘cause I managed to sell the iBook on eBay for about $600. I’ve got a boatload of unused electronics that I could be selling, but it seems like such an effort to even bother writing descriptions for them. If you have any advice for doing this more easily, I’m happy to hear it.

The interest rates are too high

On both our cars and the house, our interest rates are higher than they could be. At the time, of course, it was the best we could do. I should mention at this point that my wife’s credit history is slightly worse than mine, and until we started making mortgage payments, my FICO score was on the positive end of “Fair”. Naturally, the FICO isn’t the only thing that creditors look at, but mine has increased roughly 70 points in the last year. One of these days, I should really look into refinancing at least one of the cars.

It’s somewhat painful to admit mistakes, especially when they’re ongoing and not likely to change anytime soon. But if you don’t acknowledge there’s a problem, the likelihood of it being fixed goes down to zero. So, it’s a start.

Near the end of my college career there was a sort of “Psychic Fair” on campus. As I recall, nobody charged us anything, so I got a reading from a Numerologist.

She basically had me fill out a form with some information about myself. I remember “full name” and “birthdate”, for example. Multiple calculations later, the right side of the form had four numbers filled into boxes with labels like “Destiny” and “Soul Urge”. The Numerologist slowly removed her glasses and looked at me quizically before telling me that all four of these core numbers were the same: 8.

To summarize:

“The number 8 Destiny suggests that the direction of growth in your lifetime will be a move up the ladder of attainment in the material world, to achieve financial security, and status amongst your peers.” source: http://www.astrology-numerology.com/num-expression.html

She explained that apparently, the only reason I was here on Earth was to learn how to attain and manage wealth. So, more than ten years later, why do I still have a negative Net Worth? Even putting metaphysics aside, it’s still a valid question.

I think there are a few primary reasons:

Upbringing

Though I considered myself an independent thinker at a very young age, you can’t decide to disagree with something if it’s never presented to you. My parents didn’t take the time to teach me how to save money, though they always told the story of how my oldest sister learned to be stingy by age seven. We definitely had classes called “Home Economics” in school, but economy never came up. It was all cooking and sewing… very progressive, I know.

Not paying attention

I’ve been diagnosed with Attention Deficit Disorder. For those that don’t have it: imagine that you’re watching TV, and the show gets less interesting. The channels automatically start changing, but you don’t notice the change until you end up back on the original program again. That’s what A.D.D. is like for me. The problem is that I didn’t know it was a treatable disorder until I was more than 30 years old.

I’m sure there were times in my life when someone was giving out some good advice about managing money, and I was happily daydreaming.

Funny story: the first four checks I wrote out to various utilities when I graduated from college all came back because I didn’t sign my name. It’d be funnier if they didn’t all charge me extra for the inconvenience.

Lack of ambition

I never had anything resembling a “career” until after I got engaged. As soon as I was responsible for someone other than myself, I suddenly felt a drive to improve myself, my brain, my prospects, etc.

So, now that I understand all of this, what am I going to do about it? Well, the ambition part has mostly taken care of itself. As for paying attention, I’ve turned money management into kind of a video game. Because everything is digital now (at least, it is for me, or I would probably lose it somewhere), I’ve got our Google Spreadsheet budget, and the bank Web site that I can have harmless obsessions over. In order to stay accountable to my goals, I’ve got you guys.

As for fixing my upbringing… well, I can’t. And since my wife and I don’t plan on having children, I can’t teach them the things I was denied. All I can do is urge you, gentle reader: if you have kids, set a good example and explain to them why you do what you do with the money.

So that covers my past. Next time I write I’ll explain all the things I’m still doing incorrectly. Here’s a hint: $595 car payment.

You’ve probably been concerned at one time or another with your credit worthiness: the somewhat squishy way that lenders determine whether you’re going to repay, for example, a home loan. I say “squishy” because ultimately, these decisions are made by human beings in a temporal landscape. We bought our house in June 2007, and if we had tried just one month later, when rules were stricter, it likely wouldn’t have happened.

Nobody is allowed to know the exact algorithm that produces your credit score, but even if we had access, it probably wouldn’t be the same from month to month.

One thing that we thought we knew was that if you have too many open accounts, it can hurt your credit score. Now, a product support manager for Fair Isaac Corp. (where the term “FICO” comes from) is answering questions at BankRate.com, and in part of the answer to the first question, he replies:

It’s just not true that you can have too much available credit. That by itself is never a negative with the score … There really is never any good reason to close an account.

You’ll probably want to read the rest of the article to get all the specifics, and see what else he says on what does and doesn’t hurt your credit score.

It’s possible that this advice might be considered common knowledge, but I just learned it at age 32, so feel free to forward it to your friends who recently became part of a working couple.

The first time I saw a W-4 form at age 16, I had to take it home and ask my parents to help me with it, because the design of the thing was so oppressively boring that I could barely read it, not to mention that I had no idea what a “dependent” was. I remember my father walking over and saying, “just put zero.” Not that he was wrong, but, you know, teach a man to fish, and all that…

In the last 16 years, the design of the W-4 hasn’t improved. It’s not unique among Government documents for lacking proper hierarchy. For example, see this article about how better information design might have helped President Bush pay more attention to the memo titled “Bin Laden Determined to Strike in US”.

Here’s a snapshot of the current W-4, with an arrow pointing at the part that looks important:

And, once you’re married, here’s where the important part starts:

Of course, blaming others is hardly ever a good way to retroactively avoid making mistakes. And my mistake was not closely re-reading the W-4 after I was married. Had I ever spoken with an accountant or financial adviser before I was married, I might have avoided this mistake, but taxes had always been so easy. All marriage was supposed to do was maybe provide a tax break or two.

In 2007 I answered the W-4 questions honestly, as I had done ever since I started working full-time (enter 1 for yourself, enter 1 if you are married, and I ended up with a “2”), and my wife entered a total of “1”, because she’s just more conservative than me. All year long we, as a working couple, were not having enough taxes withheld. Not that we were living like kings, and we just didn’t notice it… we weren’t awash in cash. It just felt like we were doing okay for ourselves.

As it turns out, we bought stuff, and went out to dinner, more often than we should have.

The summary version is this: if you are filing jointly, and both of you have an income, only one of you is supposed to answer the W-4 questions “honestly”. More specifically, there’s a formula you can use to determine the individual settings that both of you should be putting on your W-4. Other important factors, like a mortgage payment, will also come into play when determining these settings.

Theoretically, there is a withholding calculator operated by the IRS, but every time I go to look at it, it’s “undergoing maintenance.”

There are other options out there, but it’s hard to gauge the official-ness of calculators created by companies that don’t have as much information as the IRS does.

If you’re part of a working couple, your W-4 almost certainly needs some finessing. Comment below if you have additional advice or questions for me and the rest of the readers here.

At the age of 32, with our household income breaking the $100,000 (US) mark for 2007, I was finally convinced by family and friends to take our tax preparation to a specialist, a Certified Public Accountant (“CPA”). I was always wary of the idea, primarily because since I started filing taxes at age 16, I would usually get a refund of about $200 to $500. And from asking around, I learned that the average price for a CPA to do your taxes was around $250. My taxes were never more complicated than looking at my W-2s (most years there are multiple W-2s, but don’t worry, I’ve never really been fired), and copying numbers from the boxes on the paper into the boxes on the screen.

When we filed our taxes for 2006, now that we were married and filing jointly, things got a little more complicated. We both purchased hybrid cars that year and were expecting the associated tax credits to supply us with a big refund on the order of around $6,000, but the refund we saw was actually closer to $1,200. In 2007, we became homeowners for the first time, which, along with marriage, is also supposed to give you some credit around tax time.

My wife reads. She devours information like Robert Redford in Three Days of the Condor, and she generally surrounds herself with brilliant people. So when she once again floated the idea of using a CPA to help us with our taxes, especially given that the previous year didn’t work out like it was supposed to, I finally conceded. We picked a local independent CPA based on location, and the fact that his web site was usable, accessible, and provided an RSS feed. We’re geeks like that.

Before I went to see our CPA, I took our tax information and plugged it into TaxACT Online, which doesn’t charge you anything until you actually hit the “file taxes now” button, to see what the numbers would look like. I got the shock of my life when I saw that we were projected to owe the IRS over $6,000. This is roughly the same number of dollars I was expecting to see, but in refund form, not as a debt. We’re married! We bought a house last year! How can this possibly be?

Well, I’ll explain in an upcoming entry what I learned about W-4 forms and marriage, but suffice it to say that I was even less inclined to go see a CPA and pay him (in our case it’s a man) hundreds of dollars to tell us that we owe the IRS $6,000. But I’d made a commitment, and there was always a chance that maybe I transposed a number or two, or misunderstood some part of the tax code, and he could fix it.

To make a long story less long, he wasn’t able to fix it, ‘cause nobody had really done anything wrong. What I did get from him, however, was two hours’ worth of really good advice. He took a genuine interest in our finances, aligned himself with our point of view about how life should be lived, and gave us specific tasks to do in 2008 that would make filing taxes next year as painless as possible.

I wrote everything down, of course, and will be sharing bits and pieces of his advice with you in the future as it comes up. But the end result is this, unless you’re single and renting, with no investments to speak of, I think it’s worth the cost to hire a professional to help you with your taxes. As of this writing, it’s still early March, and there’s plenty of time to find someone to help you prepare for next year. Just try Googling “certified public accountant [your zip code]” and poke around until you find someone trustworthy, preferably with a blog attached to their site.

My name is Smithee, and I’m an almost-total personal finance newbie. My wife and I bring in over $100,000 a year, and we have no savings at all. Just like Flexo when he started this site, we’re writing here in order to keep ourselves accountable, and to turn our lives around.