Beating Broke

Personal Finance from the Broke Perspective

Tax Day: What We’re Doing With Our Refund

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I dislike getting a refund from the government. I don’t like having to look up the my tax refund status.  I don’t have any good reason to give them an interest free loan, but any changes I make to my W4 don’t seem to make any difference.  I keep getting a refund every year.  This year, the numbers were really off, because we added a dependent last march.  After all the numbers were entered, and the forms filed electronically, the IRS sent us a nice deposit of a little over $3000.  Combined with a bit under $500 from the state, and we end up with $3500 in the bank.

Now, before I go on to tell you what it is we are doing with that money, I need to say something.  For the last several years, we have spent nearly every spare dime we have on paying off debt.  We still have debt that needs to be paid off.  However.  Despite my hate for debt, I’ve come to realize that you cannot let other things slide in order to pay off that debt.  With that in mind, here’s how we’re spending our refund.

We’re getting a new kitchen.  The cupboards in our kitchen are original to the house (circa 1950) and have been painted so many times that they no longer close.  The drawers grind against their frame and the resulting paint dust and wood dust falls down from them onto anything in the cupboards below them.  We have to wash our pans before we can use them because of the dust.  The linoleum on the floor is peeling up.  The carpet is ancient, smelly, and stained.  If you took just the kitchen from our house, it would fit right in with many of the run down slum rentals in town.  We want to move up to a newer (read bigger) house soon, so we need to make this house sellable.  In my opinion, with the kitchen in this condition, it would not sell for what it is worth.  So, we went and bought all new cupboards, countertop, and flooring. Oh, and a dishwasher.  That’s a certifiable luxury, but it helps that we bought it all on sale.  All of the supplies came in at about $2300.  There’s still a few odds and ends that we’ll need to purchase, but we should be able to keep it at about $2700 or less.

This weekend, my father is coming to town to help me install it all.  With any luck, come Monday, it will be mostly finished and usable.

If the plan works, we’ll still have about $800 or so left over.  And with that, we’re buying a couch.  And maybe a loveseat.  Depends on the sale I suppose.   This could be classified as a luxury that we don’t need if it weren’t for the hole in the one cushion, the rips in the spring lining that allows everything to fall between the cushions and disappear into the couch, and the stitching that is coming out at all the seams.  The couches that we are replacing are in dire need of it.  We got them free and have used them for several years.  The couches we had before that were hand me downs and garage sale finds.  It’s time for something new.  And, yes, we could go to garage sales and find new used stuff, but we’ve been saying that for at least a year and haven’t done it, so we’re going to splurge a bit.

When we’re done with all of that, we’ll go back to trying to pay everything off.  My wife’s new business is growing well (that’s another post), and her income is leveling off some, so we can more properly budget for debt repayment.  We’re leaps and bounds from where we were when we got married, and with any luck, 2011 will be the last year we spend with any real debt aside from a mortgage.

What are you doing with your refund?

Ethics and Morality in Personal Finance

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Personal finance isn’t all just about the best ways to save money and live frugally.  There are other things to consider; other rules that should be followed.  Some have absolutely nothing to do with saving money.Many of the posts here at Beating Broke deal with saving money, budgeting, and living frugally.  On many occasions I have drummed on the amount of debt that we all take on and the ways that we can go about budgeting to make that debt go away.  Deep in the root of that is a moral standard.  I believe we have a moral responsibility to not spend more than we earn.  And, because each dollar of debt, holds some risk of default, I believe we also have an ethical responsibility to budget so that we don’t default on our debt.

In the process of paying off our debt and saving money, many of us will be faced with a moral or ethical dilemma.  Perhaps you bought a bunch of things at a department store and the teller didn’t notice that one of the items rang up for less than it was supposed to be.  Or maybe the teller only rang up one item when there were really two.  Many of us have been faced with just such a situation.  And many of us, in our struggle to reduce our spending and debt, probably didn’t say a thing.  I know I have.  And I felt guilty about it.  Morally, and ethically, we have a responsibility to pay the correct price for an item, and to pay for the correct amount of items.  Even though I admit to not doing anything, I do try to keep myself honest.  Ill gotten gains are gains you’re likely to lose.  Call it karma, or whatever you like, you’ll feel the reverberations of your acts.

Perhaps more-so than in paying off debt and saving money, ethical and moral dilemmas can arise after we’ve paid it all off.  Suddenly, we find ourselves with an abundance of spendable money that we can save or do what we want with.  It’s not earmarked for any debt, and we’ve already paid ourselves.  The situation has changed, but we still have a moral and ethical obligation to do what is right.  If you’re investing your money, do you invest in so-called “sin stocks”?  The stocks of cigarette and alcohol and other indiscretions.  Again, I know I have.  I am still a shareholder in the parent companies of both Marlboro and Camel.  I’ve owned others in the past.  Depending on how you feel about those companies, a ethical dilemma could come up.  As a generality, those companies have rather solid stock and usually pay dividends.  If you feel that those companies are responsible for cancer and death, can you ethically allow yourself to support them by becoming a share owner of that company?

As debtors, we all despise the credit card companies who charge double digit interest rates and hide fees around every corner.  Banks too.  As someone who can now invest money rather than paying those credit card companies and banks, deciding how we feel about those rates and fees can be another dilemma.  If you’re one of the lucky ones  whose state has allowed access to the peer-to-peer lending companies, you have the ability to invest in loans that carry rates that are very much the same as what a credit card company or bank would charge.  The table has turned.  If you were against it when you were paying the rates and fees, can you ethically charge them?  Morally, should you?

I think that many of us look too closely at the technical aspects of personal finance.  We study amortizations schedules and debt snowballs.  We talk endlessly about our retirement funds and the ways that we are going to build them up.  And, while it is there as an undercurrent, we sometimes fail to see the moral and ethical currents that run in the background.  And sometimes, we allow our technical expertise and know-how overcome our moral and ethical compasses in order to make our debt snowball roll a bit faster.

If you truly want to win at personal finance, you have to find your moral and ethical limits and remain steadfast in their direction.  We all fail to do that occasionally, but, as the old saying goes, you’ve got to get back up and try again.

Avoiding Reactive Personal Finance

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Just what is reactive personal finance?  It’s the management of your personal finance in reaction to events or situations as opposed to the management of personal finance in anticipation of events or situations.

The best example of this is a budget.  A budget is built and held to in anticipation of events in your financial life.  You know that things like your electric bill and water bill are going to be coming and roughly how much they  will be.  That allows you to budget for them and set aside money to pay for them with.  A budget is a great tool in avoiding reactive personal finance.

Why do we need to avoid reactive personal finance?  Because reactive personal finance is disruptive.  You are managing and spending your money in reaction to the events that are happening.  Doing so can cause you to quickly lose control of your finances and find yourself in a downward spiral of poor management choices and, eventually, it can lead to you being broke.

Some examples of events that can cause you to become reactive.  Medical emergencies, blown tires, unexpected social events, and even bills that are larger than they normally are.  Any thing that is unexpected can cause you to spend in a reactive manner.  And when you have events like that, it can often lead to larger problems, like overspending on luxury items to make you feel better.

How do you avoid reactive personal finance?  No plan is foolproof, so it’s not really completely possible.  However, you can make the odds of it happening be cut drastically.  How?  An emergency fund and a bit of willpower.  The emergency fund will give you the available spending power to cover any emergencies that would normally make you spend in a reactive manner.  Instead of trying to react and borrow from somewhere else to pay for the emergency, you can just pay from the emergency fund and not need to react any further.  The willpower comes in where the spending opportunity isn’t an emergency.  You have to have the willpower to avoid last minute and spontaneous spending that could drain your funds and cause you to become reactive when you no longer have the money to pay bills or buy necessities.

The best laid plans often go askew.  But, building an emergency fund and strengthening your resolve can go miles towards avoiding reactive finance and potential disaster.