This month is Insurance Month in the series Naked With Cash. Each month, seven Consumerism Commentary readers anonymously share their financial reports to gain insight about their progress towards their goals. Read this introduction to learn more about the series.
Anne and Matt are twenty-seven years old, living in the Midwest, with two children. Read their bio here for background about their financial situation. Anne and Matt are on Team Neal, with Certified Financial Planner Neal Frankle.
Their goals are to strike a balance between saving for the future and enjoying the present and to save enough for retirement. Keep reading to see their net worth report, comments about the report and their progress, thoughts from Neal Frankle, and feedback from budgeting expert Jacob Wade, founder of iHeartBudgets.
This month, the Naked With Cash participants are discussing their taxes as a focus within their monthly financial status updates.
Anne’s comments and analysis
As I predicted last month, our tax refund and our third check really boosted our net worth.
We used some of that extra cash to get a month ahead on our spending. So, we set aside $5,500 in an earmarked savings account, and we’ll use that money to pay all of our bills, investment contributions, fixed savings, and miscellany. Income exceeding $5,500 will go toward our other goals. The paychecks that we receive in April will be saved in that savings account, to be used the following month.
I had always struggled with the biweekly paycheck cycle, and also sometimes there was a delay with Matt’s employer actually paying him. It would be just a few days, but it would often mean I’d have to move money from savings to cover an automatic bill payment. Frustrating, but no more!
I mentioned I’d try You Need a Budget. I wanted to like it, because I know so many people do get a lot of benefit from it. But I just couldn’t get it to work for me. At first, I realized that it was because I wasn’t yet a month ahead on my spending (and I do think this principle is awesome).
Even though I could import transactions, I never felt confident that my YNAB balance was my true available balance to budget. I know you can reconcile accounts, but even so I felt confused with it. I didn’t like having to add every transaction myself. I’m glad I did the trial. Perhaps if I bought it and committed to it for a few months, it would eventually make more sense to me. However, I don’t want to spend the money on it, because truthfully I’m probably not going to use it in an effective way.
I also restarted my Mint account to track spending. I think I prefer that setup more, because it’s pulling data and categorizing it on my behalf. My hands-on part of it is much smaller, and I appreciate that. I know you can use it as a budgeting tool, but I haven’t set that up yet. Mostly, I want to see where our spending patterns have been lately.
I’m not particularly interested in reducing our spending by much, though. I don’t think we’re being reckless. I’m not interested in spending the least possible dollar at the grocery store, for example. We value quality produce, meats, and ingredients. Sometimes that costs more, and I don’t care. I’m just thankful we can swing it, whereas a few years ago we really did have to keep our food budget under a set amount so we could meet our other obligations.
At the risk of sounding like a huge jerk, our net worth has gone up every month we’ve been tracking it. We are fine. I don’t know what benefit we’d receive by pre-planning every dollar we’ll spend on discretionary purchases.
This month, the Naked With Cash participants are talking about taxes.
For 2012, our AGI was $96,000. The taxable income was $61,000, and our yearly federal tax obligation was $6,100. Our effective tax rate was 5.46%.
I anticipate a larger tax obligation this year, as Matt’s new job began mid-2012. We’ve adjusted the withholding so that we’re not going to get a big refund, but will still pay enough so that we won’t have to owe a lot, either. At some point, it will be worth meeting with a CPA to make sure we’re making the most out of our tax situation.
Our property taxes are affordable, at roughly $1,700 per year. We live in a state that levies a 7% sales tax. Our state has an income tax, but it’s among the lowest of states that tax.
Overall, I don’t feel burdened by our taxes. I do wonder what will happen in 2014 with the health care changes. I expect our health insurance to likely continue to be expensive, and I don’t know that we’ll qualify for much in the way of tax breaks.
Feedback from Neal Frankle, CFP
Congratulations on having a banner month. But I do want to point out a few items that might help going forward.
First, your net worth is important of course but I wouldn’t use it as a gauge of success or failure. Your net worth changes in the short-term because of market fluctuations and cash flow irregularities. Case in point, you commented that the extra money you received in March is going to pre-fund some spending.
So by that measure, it’s only going to show up on your balance sheet until the spending takes place. I would hate to see you berate yourself when your net worth declines over the short run because of:
- a market decline, or
- the spending flow catches up with you.
Net worth is something to look at long-term in order to really be helpful in my experience.
You mentioned also that YNAB didn’t work for you, and that’s fine. I’m really pleased you gave it a shot. However, you also mentioned that you are going to put a month’s salary aside for spending but then said you couldn’t use YNAB because you can’t put a month’s salary aside. So that confused me.
Ultimately it doesn’t matter. If Mint works and you use it, that’s plenty good enough. You can also use bank statements as I’ve already mentioned. And many online banks like Everbank offer many free tools to help you master your budgeting too. These are all great free resources.
Just keep in mind that you can import data for YNAB and it does automatically assign categories. I just want to be fair to You Need A Budget.
I really liked that you very clear about not wanting to reduce your spending and that you are proud of your progress. I agree and that should be acknowledged.
I don’t have any comments for you on the tax side. It sounds like your situation is very straightforward, and you have a great handle on it.
My question is this however: What do you want help on, and what are you willing to do in order to achieve a different result? It sounds like you are quite content. There is nothing wrong with that — I am very content myself, financially. But as a CFP, I always try to understand what the problem is before I dive it to providing solutions.
What is the problem you want to fix right now?
Feedback from Jacob Wade
You guys are in a great position, especially for your age. I know that because you are kicking my butt, and I’m 27 as well :)
I am super glad to hear you are now a month ahead on your budget. My wife and I have been on this plan for over 4 years now, and it has been the single most important financial move we have made to reduce stress. I hope it results in the same for you!
Sounds like you’ve got a great CPA, glad to hear it. As a tax pro myself, I can definitely recommend hiring a good CPA to take care of your taxes, because the government isn’t getting any simpler, and I wouldn’t count on it anytime soon!
My question would be: Do you have any goals? I use my budget as a means to achieve my goals, so once I write them down, I reverse engineer how I’m going to get there, and then put those plans into action in my monthly budget. Whether is a sweet vacation or buying a new car, I put the money aside in a savings bucket each month to ensure I get there. That is the one place I could see being advantageous for you to plan for with a budget or budgeting software. Of course, I’d argue that there are 4,587,300 other reasons for a budget, but that’s the one that I think you’d enjoy most.
Updated April 25, 2013 and originally published April 19, 2013.