I am a Stay at Home Mom. Here’s How I Finagled My Finances to Make It Happen.

The biggest decision Husband and I have made regarding our lifestyle and finances was for me to stay home with Son. That meant a 50 percent cut in our income, but we thought about it quite a bit before Son was even a twinkle in Husband’s eye, and we planned ahead.

Here’s how we made it happen:

1. We did the math. We thought out what expenses we’d be able to cut/save if I stayed home and which would go up. Daycare was easily the biggest expense we’d be able to forgo. We’d also save on gas to and from work, eating out (lunches and dinner) dry cleaning and income taxes (hello lower tax bracket!). We’d see an increase in electricity, water and groceries (now that I’d be cooking more), not to mention all of the new expenses for the baby (healthcare, food, diapers, etc.). Having more than one child can have a huge impact, too. My income was such that we’d still be losing a huge chunk of income, but for some people I know staying home made very little difference in their bottom line. Check out this great second income calculator to help you figure out how much your second salary really brings.

2. Cut unnecessary expenses. I stopped getting my nails done and cut out my daily Dunkin’ Donuts coffee stop. We both started bringing our lunch to work more, and we looked to cut our cable bill and other bills to get what we wanted, but not more than we needed.

3. Started to live just on Husband’s income. Since we knew we wanted to start trying for kids right away we began doing this a few months after we were married (I wish I’d started sooner). We did (do) dip into it occasionally, but we wanted to get used to the idea of living just on his income.

4. Changed our insurances. Instead of the better PPO health plan we went with the HMO, saving us several hundred dollars per month. And we pray for no serious health issues.

5. Paid off or set aside money for big recurring expenses. While I was still working we paid off some life insurance we had so we wouldn’t get that bill when I wasn’t working, and we got a discount on the premiums by doing so (and an extra tax bill, but still worth it). We set aside three years’ property tax payments and a few other once-a-year payments (just in case).

6. Made sure cars and appliances were in good condition. We didn’t want to be saddled with a car payment or large appliance replacement at least for the first three years. We had our mechanic check our cars (which were paid off), bought a new dishwasher and set aside money to replace our AC unit (we did have to replace it) and our dryer (still kicking).

7. Decided to stop adding money to retirement plans. Except for Husband’s 401k (he gets matching funds, and we never throw away free money), we stopped contributing to our IRAs. We decided we’d likely need the money to live on, and when son went to school and I started working again during school hours we’d be able to make up for the lost time.

8. Get more freelance work. Husband is a graphic designer, an occupation very conducive to freelancing. This extra income would (has) allow us to make up for any shortfalls, and give us treats such as vacations and iPods and flat screen monitors.

9. Found alternative sources of income. When opportunity knocks we invite it in. I find bargains and re-sell them, take surveys, participate in market research, and took a temporary job working for Husband’s Uncle (very lucrative, but only lasted a few months, dadgummit!). A friend of mine makes extra money providing after school care for neighborhood kids. We also speculated that Husband would be getting a raise or two, but we didn’t count on it. He has gotten several raises and bonuses (though his Christmas bonus this year was a bit unsatisfying), and they’ve certainly helped!

Thanks to this plan we were able to put much of my salary into savings, creating a nice cushion for what we knew would be “the lean years”. Now, nearly four years later, it’s been a rousing success.

If becoming a Stay at Home Mom or Dad is what you want to do, take a look at your own life and see what’s possible.

I highly recommend it.

Called on the Carpet: January 30th Financial Goals Checkup

Uh oh. It’s January 30th and I am waaaaaaaaay behind schedule for the year.

PaidTwice over at I’ve Paid For This Twice Already wrote a post checking in on her 2008 financial goals, then asked me and two others how we were doing with ours. I’d entered a really great carnival with my post It’s About the Money, Honey where I outlined my financial goals for 2008. PaidTwice wants to know how I’m doing.

The answer is not great. I got waylaid for much of December with my son getting very sick, and then I had to deal with my own version of InfectionsRUs. Then vacation, and, and…

All of which is really irrelevant, because the real reason I’m behind is that I’ve got a serious case of the “I just don’t wanna!”s. I’ve always just had a loose budget in my head, and since we have no debt and considerable savings on a single, modest income, I’ve been doing okay so far.

But I could do better. Much better.

So, here it is. The good, the bad, and the ugly.

1. Draw up an actual budget by January 5, 2008. I’ve finally done one. Late. Very late. Okay, today. After I saw PaidTwice’s post. I’m sure it will need tweaking, but at least it’s done. Honestly, I’m abhorring the whole process, and the thought of entering my receipts has me, on January 30th, looking for just about any distraction. Still, I will persevere. Tomorrow. Hey, American Idol is on! Grade: C-

2. Install the Peachtree Accounting program (bought for $120 and then got a $140 rebate, thank you very much) by January 5, 2008. Um, yeah. Not done. It’s sitting here right by my computer. I’ve decided to wait on this and just start small, with simple software, so as not to overwhelm me even more than I already am. My new target date for this is July 1, 2008, but I may put it off longer, depending on how things go. Grade: Incomplete

3. Review all of our IRAs and other retirement and savings accounts by March 31, 2008. Well, finally one I’m not late on. As I get my tax info together I’ll get this stuff together, and make an appointment with…someone…to go over all this stuff. Grade: Incomplete

4. Pay ourselves first. Find at least $100 per month to put into our non-401k savings, and $20 per month to put into our son’s savings account per month. I have enough left in checking this month to do both things. Yahoo! Grade: A- (saving a full A for saving more than the goal amount)

5. Learn about the stock market. Read at least one book per quarter, and at least one online article per week. I haven’t read a book yet (suggestions, anyone?), but I have been reading lots of financial articles, and even a few on the market. Blech. Grade: B

6. Enter the stock market by the end of the year. Not a thing done yet. Grade: Incomplete

So, that’s one A-, a B, a C- and three incompletes.

Not a stellar start, but a start it is.

Sometimes one needs to get called on the carpet to get back on track. So, thanks PaidTwice. I take back all the things I said to my computer screen when I read your post. 😉

The Accountant’s Daughter’s 2007 Year End Tax Tips

The end of the year is one of the most important times in our financial year. Besides putting our money and time budgets to the test with all of the holiday gifts and parties and travel, tax planning should also be a money and time priority.

Being the daughter of an accountant, there’s a few things I’ve learned over the years. The first is to always hire a tax professional to get correct advice, and to minimize your tax liability. Now that my husband and I have a small business we’ve discovered the minefield that is deductible small business expenses , and we’ve gotten invaluable advice on how to use those deductions correctly (for example, we decided not to deduct our home office), minimizing the risk of an audit. Even if you do them yourself, I’d at least get the return reviewed before submitting it to the IRS. Often communities will offer free or low-cost tax preparation assistance, so check in your area.

Still, even as laymen, there are things we should know about, even if only to ask our accountant. Here are a few things I’ve been doing or considering as the calendar and tax year comes to a close. I hope they are of help to you.

The bottom line when it comes to taxes is that you want to delay paying taxes on your income as long as possible, and pay expenses as soon as possible. By deferring income you in effect get the use of that money for an additional year before having to pay income tax – a year when you could make that money work for you. And by paying expenses NOW you get to deduct that which is deductible now, reducing your tax liability.

Delaying Income

1. Defer your compensation – If possible, defer your last paycheck or any bonuses due you until after the first of the year. When it comes to income, it’s always better to put off until tomorrow what is due you today. Try to get your job-related expenses reimbursed before the end of the year instead of your regular paycheck, if possible. That way you can still get some cash, and it’s not taxed as income.

2. Make additional allocations to your 401k or IRA – Deductions to some retirement accounts are made with pre-tax dollars, reducing your taxable income. You can contribute up to $15,500 per individual to a 401k (plus an extra $5000 if you’re over 50) or up to $400o per individual to an IRA ($4500 if you’re 50 or over), so max these out of you can. Even if you can’t max it out, even an extra $100 helps you now and in the future. A nice bonus – IRA contributions for 2007 don’t need to be made until April 15, 2008. There are also ROTH IRAs to consider. Though not tax deductible they may be better for you in the long run. There are also SEPs and Keoughs which have various rules, so check with your accountant to see what would be best for you.

3. If you have a small business, wait until January to bill your clients – a few weeks delay on you having that money is the same as deferring salary for others.

Expenses to Pay Now

1. Pay your property taxes early – If you do not escrow for your taxes and are responsible for paying them yourself (along with homeowners insurance something I highly recommend – why should you pay them a year in advance through your mortgage payments?), you may get a discount by paying them early. I save about $200 by paying them in November instead of waiting until March. That’s a pretty good savings.

2. Make your January mortgage payment a few days early – This way you can take advantage of the additional mortgage interest in this tax year instead of next. Note: It must reach them by December 31st to qualify.

3. Consider selling losing stocks – You can use the loss to offset some of the capital gains from your better-performing investments. Note: There are some tax changes coming next year which may make this not the right choice for you – check with your accountant.

4. Make charitable contributions – Generosity is tax-deductible. Make your contributions now, but please keep in mind that they’ve really tightened the requirements for appraising the value of non-cash donations. Money is easy, but you’ll need an appraisal by an expert for any contribution over $5000 (so if you’d planned on donating to charity the car that died 5 years ago that’s been sitting up on blocks in your back yard, you’re probably going to be out of luck).

5. Now is a better time for pricey medical procedures – Well, really never is a good time for this, but if you have any procedures you need done in the near future try getting them done before the end of the year if the costs will exceed 7.5% of your adjusted gross income. Another tax deduction awaits. Then again, who wants to do this around the holidays?

6. If you have a small business pay any deductible subscriptions, dues, invoices now – Again, better to take the deduction this year and reduce the tax due in April.

7. Make that big purchase – in my state we get to deduct sales tax, but that deduction may end this year. So if you live in one of the states without a state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming) now is a great time to buy a car, a $6000 Apple computer, or a huge screen plasma HDTV television (hello, Super Bowl!).

8. For any deductible purchases you make this month, use your credit card – this way you get the item/benefit this year, get the tax benefit this year, but don’t actually have to pay for it until next year. When you can use that income you deferred. Hey, every penny counts, people!

Which brings us to an excellent point. Every year brings changes to tax laws. This may be the last year for several deductions (like the $250 supply deduction for teachers and the college tuition deduction). Please take advantage of them now. Also, the new tax year will bring new rules, so in some cases you’re better off trying to have some things fall under the 2008 tax year. Again, your tax advisor can help you wade through the muck.

As always, please remember that I am not an expert on finance, or an accountant. This is nowhere near a complete list. I’m just an accountant’s daughter. So, please, please, please contact your accountant for expert advice.

It’s About the Money, Honey

It’s the first day of December, and a good time to start thinking about our finances, and our goals for next year. I was inspired to do so by the folks over at Cash Money Life , who have set up a Carnival to encourage people to share their Financial Resolutions for 2008. Horefully we can learn something in the sharing.

We’re in pretty good shape financially. Even though we’ve been a single income household for the past three years we have no debt, besides our mortgage. We have credit cards, but we pay them off every month. We have a nice amount in savings. It’s not easy to live on one moderate income without accruing debt, but we feel blessed and grateful that we’ve been able to do it.

Still, we should be saving more money than we are, and we want to change that in 2008.

Here’s the plan.

1. Draw up an actual budget by January 5, 2008. This is something I have always resisted. I have a vague budget in my head, but nothing drawn up on paper. I’m not promising to use it for the whole year, but I do promise to try living by a budget for six months and see how it fits.

2. Install the Peachtree Accounting program (bought for $120 and then got a $140 rebate, thank you very much) by January 5, 2008. And start using it for budgeting and to keep track of receipts and expenses and such. My taxes will be soooo much easier to do next year!

3. Review all of our IRAs and other retirement and savings accounts by March 31, 2008. Consolidate and eliminate as needed to reduce fees and maximize profitability. Our biggest issue with this is not knowing who to trust with our money. Everyone seems to have an agenda. We may have to bite the bullet and just consult a financial planner – the kind that charges you an hourly rate but isn’t tied to any company, so hopefully they’ve no agenda of their own). Again, though – who to trust?

4. Pay ourselves first. Find at least $100 per month to put into our non-401k savings, and $20 per month to put into our son’s savings account per month. We haven’t been putting much into savings since I stopped working – we’ve just been maintaining the status quo. Note: These numbers may be adjusted once the budget is set.

5. Learn about the stock market. Read at least one book per quarter, and at least one online article per week.

6. Enter the stock market by the end of the year. Do the research, set a budget and jump in. Again – who to trust?

We also hope to sell our house and move out of state in 2008. I’m going to cry if that doesn’t happen. Cry a lot.

By reaching these goals our financial picture will be much more focused than it is the way it stands now. That’s a good thing.

See how I’m doing on my goals! Check out Called on the Carpet: January 30th Financial Goals Checkup!

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