Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).
This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.
Brian is a 30-year-old engineer. He has a wife and two young children. He works as a software engineer, and his wife stays at home. They have student loans and a mortgage, and usually pay their credit card balances off each month. Brian and his wife want to be able to retire comfortably and help their children pay for college. (Read Brian’s update from last month.)
Brian’s Net Worth Statement
Brian’s Income Statement
Comments and analysis from Brian
This month’s topic is tax planning. Tax time is really my least favorite part of the year. Throughout the year you save all kinds of documents and receipts to prove to you deserve to pay less in taxes. It also takes a lot of time to fill out forms, double check numbers, and get it organized in case you are audited.
I really do not do much to prepare for taxes except keep a file of all forms and receipts I get throughout the year. This year I have already completed my federal tax return, and just need to fill out the simple forms for the state and local taxes.
This year, as with every year, I really mean to adjust my withholding. As you will see in the February update, I am receiving a pretty sizable tax refund. Adjusting my withholding is pretty high on my to-do list this month to correct for this tax year. I really do not make any specific tax moves except to do some house cleaning and donate clothes and things I have not used in the past year. We live in a pretty small house for a family of four and just do not have the space to store junk.
For us, the holiday season has always been crazy. I really have not had time to sit with my wife and discuss our new financial situation. Over the month we have been sitting together and trying to come up with a plan. We found out that health insurance is going up $100 dollars per paycheck, and the company match is decreasing as of the start of the year.
Cutting back expenses to a point where we are putting money into savings really needs to happen now. We are lucky to get a big shot in the arm from tax refunds to help pay for mistakes we made to end the year, and give us a little boost to start correcting the ship. The first step I need to take is to adjust that W-4 so I get more of the tax overpayment in my weekly paychecks. That should improve our income-to-expense ratio.
As Luke mentioned in his feedback, my main problem is cash flow. When we had two paychecks, cash flow was easy for us. Now we have to make choices about how we spend our money. My goal for this year is to cut expenses and really start saving money away. I have started to identify ways to achieve this goal. During the past couple of years I sat down towards the end of the month to look over finances and track our progress. This year I need to take a more active approach.
I started using the envelope system this year. I want to save up money for when I know I need to make big purchases. Also, over the next few months I want to identify areas we can cut back. In the last few months of last year, we made an effort to cut back on groceries and household items. Through couponing and planning around sales, we have made strides in this area. My wife’s parents bought us a chest freezer for Christmas, and this has allowed us to stock up on food for really good prices.
Over the last few months the children and household items categories have been more than usual due to us stocking up on items we have saved 20% or more on. We have a nice stockpile on common goods that we do not have to buy monthly and can wait on the next great sale. Another area we are looking at is cell service. It is a big percentage of the budget.
Finally, we have a lot of little expenses that add up to a lot. We need to be more knowledgeable of where we are at with spending for the month. Unfortunately, there are categories I would love to save money on, but it is out of my control (it would be really nice to get my eldest potty trained).
In September, during our annual furnace check, they found something wrong. We also suspected another issue with the air conditioning unit. I made the decision to go ahead and replace both, since our current units were more than 20 years old, and the quote to fix them was more than $1,000. The huge increase in efficiency should help utility expenses in the future. This was a really tough decision, and I knew this was not the best time to make this purchase, but I would hate to put even more money into the old units in a few years.
Long term goals for our family are to get our emergency fund to six months’ worth of expenses, save up a down payment for a slightly bigger house, and save enough for our kids to pay part of their college education.
January results in a lot of yearly expenses, such as HOA, trash pickup, and auto registration. I plan for the first extra paycheck to pay for these. Additionally, there was an annual fee for the premium rewards credit card used for most of my purchase.
Feedback from Jeff Rose, CFP
Jeff Rose takes a look at Brian’s finances for January 2014. He takes a look at some of the progress Brian has made in terms of actively planning his finances. Additionally, there is a look at tax planning, and Jeff also makes an interesting point about the advice to avoid a tax return. Does it really matter if you’re giving the government an interest-free loan?
Feedback from Luke Landes
On the one hand, January’s cash flow looks great, but the primary cause for that was the three-paycheck month. Yes, you had some annual expenses to take care of, like the $240 annual homeowner association dues — where I live, you’d be lucky to pay $240 a month in similar fees — and the $205 trash pick-up fee, but with $1,500 additional income this month, it could have been a good opportunity to add to your savings. But at the same time, it’s also one of the best opportunities of the year to deal with other necessary spending like you mention in your update above.
I’m looking forward to seeing more from your ongoing analysis of where you will be able to save money. Having more long-term storage space for food is good, but sometimes having the space opens the opportunity for increasing spending under the guise of saving through bulk purchases. One of the reason warehouse stores do so well is that those customers spend more. Buying in bulk occasionally turns into buying more than you need.
Published or updated February 24, 2014.