This video was inspired by Crystal over at Budgeting in the Fun Stuff. You can check her’s out here… after watching mine of course!!
In mid-2012 we decided to have less money withheld for taxes out of my husband’s check. (You can adjust how much is taken out for income taxes on your W-4. The fewer the “allowances” the more will be withheld.) We went from claiming zero (where they take out the most) to claiming 5. We looked at a few tax calculators to figure out what we think we will owe in taxes for the year. We took that number divided it by 24 to get an estimate of what they should be taking out per paycheck to get to our estimated tax bill per year. We did have to fiddle with it for a few weeks until we got close to the number we were looking for.
Doing this means bigger paychecks and a smaller tax return.
Since we did that in the middle of the year we still got a tax return on our 2012 taxes, because they had been taking too much for the first half of the year.
Our 2013 taxes was going to be the first real test of our new tax situation. However, I messed it up. I got a job and therefore made way more money than I have in previous years. I worked as a W-2 employee for about 3 months. (W-2 employees are what most people are… their job takes taxes out of their checks) I claimed zero on my W-4 because at the time I wasn’t sure how this new income was going to affect our taxes and I knew that was a safe bet to not have to owe taxes later. I figured we could tweak it later if we wanted to.
Then after 3 months things changed and I started working 1099. Which means I’m now considered an independent contractor and they do not take taxes out of my paychecks. I figured that with the extra taxes they had taken previously I was probably pretty close to even on the income tax front.
And I guess I was. $700 isn’t too bad of a tax bill. We can handle it. Although if I’m honest, I do wish we were getting a big ole’ tax return. :)
Since I’ll be working 1099 all year our tax bill next year is going to be pretty significant. To help prepare for this we are saving 20% ($600 a month) of my income for taxes. In fact, I should probably be making quarterly estimated tax payments. You know, the government doesn’t like to wait for it’s money. I’m going to have to look into that.
My 8 year old just bought his first stock today. He’s very proud and was going to tell all his friends at school. No one will know what he’s talking about but I’m glad he’s happy.
It all started at Disneyland earlier this month. We were walking around he said something like
“Disneyland makes a lot of money!”
“They sure do! You could own a piece of Disneyland if you wanted to.”
“Oh yeah? Which piece?!”
I explained a little bit about how you can buy a very very very small piece of Disney. He was excited about the idea. When we got back to the condo that night I looked up the stock price on my phone. It was $71 and change. He is a big saver and has like $900 saved already so I actually think investing might be a really good idea. Granted, maybe individual stocks probably isn’t the recommended way to go but hey, it’s just a learning experience.
He was very excited and would have bought it right then if we had had the accounts set up.
When we got home he was still interested so I went ahead and got a UTMA brokerage account set up for him.
UTMA stands for Uniform Transfers to Minors Act which means that I’m the custodian of the account until he reaches 21. (18 in some states) When he reaches 21 the account transfers to him upon his request and I can’t stop that from happening. Which is fine since he is investing his own money anyways. I’m not giving him the money. It’s birthday money, or money for chores, or whatever. His money… not my money.
This type of account also has a few tax benefits such as the first $850 per year is tax free, and the next $850 is taxed at the child’s rate of 10%. Anything above that would be taxed at my rate. I can’t imagine that this will be much of an issue for a long long time, if ever.
These accounts do heavily influence financial aid when college comes around, since it is considered the child’s account. But in our case I’m not too worried about that since I would hope he would use any money in there for college anyways. I’d rather do that then take loans!
Anyways… setting up the account was pretty easy. I picked USAA for a few reasons but one was that they were running a promotion of 50 free trades. I was thinking 50 free trades would last him YEARS! Turns out that minor accounts didn’t qualify for the free trades. I explained the situation and they very kindly gave him 25 free trades for the next 90 days. Which was awesome of them. Excellent customer service was one reason why I went with USAA in the first place.
By this point, the stock price was about $75 so I transferred $80 into the trading account and waited 7 days for it to clear. Meanwhile, the stock is ticking higher and higher. I was getting nervous that $80 wasn’t going to be enough! It finally cleared on Feb 17th but it was a holiday so we still had to wait another day. The price was $79.32. I went ahead and put the trade in but I wasn’t sure what it was going to open at on Tuesday morning so I was pretty nervous.
Tuesday morning my son and I laid in bed and waited for the market to open so we could see if the trade would go through. That was very frustrating because the “Real Time Stock Price” websites are not really “real time”. It actually didn’t update until 7:45 (9:45 Eastern time). But to our relief it opened at $79.50 so the trade did go through. In fact, the high for the day was $80.00 exactly, which I thought was kinda funny.
So he is now the proud owner of one share of Disney stock.
Watch out Warren Buffet!
The following is a featured post…
Can Loans Ever Make Financial Sense?
Lending has been much maligned of late. Thanks to the global recession, millions of people around the world have experienced financial hardships which can be directly attributed to lending. Whether these people made poor judgement calls is neither here nor there – the truth is, lending is still out of control in a huge number of both developed and developing nations.
The Backbone of Society
Nevertheless, lending has formed the backbone of many financial cultures for hundreds of years, and without it our societies would look vastly different. Lending allows us to buy homes, to buy cars, to start businesses and send our children to school. There’s a significant difference between taking out a loan for frivolity and doing so because you want to invest in your future, and the future of your family.
Educate Yourself about Lending
The only way to ever really be sure that your loan makes good financial sense is if you educate yourself beforehand about what it is you are signing up for. In this respect, the only companies you should ever deal with are those which publish clear guidelines about what their lending terms are and how much you will be paying back. These companies do exist, and they are usually the ones who report the lowest rates of non-payment in their customers. Not only do both parties have a better understanding of the terms and consequences of taking out the loan, but there is no hidden small print to trip up the borrower later down the line.
Finding the Right Provider
Something which really makes a difference with regards to how sensible a loan can be is which provider you choose to borrow from. Some providers have a long standing record of good service and fair treatment of their customers. Others are not so reputable. Always get a good history of the providers you are considering and see if you can find stories from previous customers about the service they received. This will help you to find the right provider for you.
Lending and the Individual
We’ve established that loans can make financial sense in a general way, but the only way a loan will ever truly make financial sense for you is dependent upon your particular financial circumstances. Before you take out a loan you should always be sure that you are capable of handling the responsibility. Many people have taken out loans because they are in a desperate situation, but have later found that the added debt burden only worsens their financial plight. Loans should only be taken out if you know you can pay them back, therefore it’s advisable that you are in regular employment or have access to savings which can cover at least one of your repayment amounts. In addition, resist the temptation to take out a loan for anything that can be classed as ‘non-essential’. If you don’t need it right away then saving should always be the preferred option.
I’d like to give a shout out to Khaleef at Fat Guy Skinny Wallet for the encouragement to do this!
I made a video each day while we were at Disneyland and discussed our budget and expenses for the day. Were we able to stay on budget at the happiest place on earth?