Shove it tax man.

I’ve been doing a bit of financial spring cleaning lately (yea, I know spring is far gone). I’m quite proud of myself honestly. We are in the process of rolling $4,000 of forgotten retirement funds in to a traditional IRA for Girl Ninja. My last post was an update on how we are doing in regards to our 2012 personal finance goals. So today, I thought we’d keep the ball rolling and check in with our friends enemies at the IRS.

If you’ve been around PDITF for a while you’ll recall last year when I did my mid-year IRS check I was shocked to find out that we were going to owe about $4,000 come tax time. 2011 was our first full year as a married couple and, while dual income is definitely sexier than David Beckham in a Calvin Klein underwear shoot, it does have one drawback….it puts us in a higher tax bracket.

At the beginning of this year, I made some adjustments to our withholdings hoping we would owe (and be owed) nothing this go around. Turns out, I must have overcompensated. Instead of owing a few thousand dollars like last year, we are actually set to get a refund check of about $1,500 come next tax season.

If you are thinking “That’s awesome!”, I have some unfortunate news for you…

You might be dumb.

Or at the very least, you don’t understand that a tax refund is really just the government giving you back your own money. Money that you loaned to them for free. Last time I checked, I’m not in the business of making interest free loans to anyone, so why the heck would I start now? You bet your lumpy bottom as soon as I saw we were scheduled to get a refund, I submitted a witholdings adjustment form to my employer. I’d way rather owe The Man $1,500, than be owed $1,500. It’s simple math.

You almost had me IRS….almost.

p.s. for those that are curios we are supposed to owe about $13,000 in federal income tax by years end…think about how many california burritos I could have gotten with that money ūüôĀ

p.p.s. Here is the calculator the IRS provides to figure out how much you will owe.

Houston, we have a failure.

So once a year I like to open up my Excel spreadsheet and make some assumptions as to how the calendar year will play out for the Ninja household….financially speaking that is. I’ve done this years past, and every single year I seemed to unintentionally underestimate our ability to save. Often meeting our annual goals three to five months earlier than planned. While that is definitely a good problem to have, it’s still a problem. I want my goals to be challenging. Something that would take a full twelve months to reach. Heck, maybe I shouldn’t even be able to reach my goal at all.

Well folks, it looks like my wildest dreams are coming true. We are on course to epically fail at reaching our 2012 personal finance goals. According to our budget, our accounts are supposed to have the following balances by years end:

    • Checking Account: $1,000
    • Savings Account: $100,000
    • Roth IRA: $31,500
    • 401K: $37,500
    • Total Assets: $170,000

We started the year out with $114,622 in assets, meaning we had to move up $55,378 this year to achieve our $170k goal. For those that like things broken down, that would require an increase of $4,614 every month. A quick glance at the handy-dandy savings/net-worth meters on the side of my blog show that our current assets total up to about $135,000. Meaning we are 36% of the way to reaching our goals, but we are 58% of the way through the year.

Frick. 

While I’m extremely tempted to go in to my spreadsheet and make our 2012 goal be a $150,000 net worth, I know that would only cheat myself.

Think about it like this. Would you rather set a goal to run a mile in 6 minutes and run it in 5:45, or set a goal to run a mile in 5 minutes. but run it in 5:15? If you said 5:45, you are a) an idiot, b) lazy, or c) a lazy idiot.

I’m learning it’s not so much the goal that matters, but¬†more so¬†one’s desire to push themselves farther than they ever thought they could. That is what I want to do with our¬†personal¬†finances;¬†Push ourselves to be responsible, to take risks, to have fun, and to be¬†diligent. Ambitious goals promote these types of qualities. Easy goals promote a false sense of accomplishment.

Unfinished Business

Exactly one year ago Girl Ninja quit her teaching job in San Diego to come move up north and join me in Seattle. It didn’t dawn on me until last week, that Girl Ninja didn’t just leave her former employer behind, but she may have also left behind some retirement savings in her old 403b. Having no clue how much she may or may not have in this 403b, I had her call the school district and get some information.

Turns out, homegirl had nearly $4,000 in her 403b. The school district told us we had three options for that money:

1. Keep the money in her SDUSD account.

2. Withdraw the money and put it in our savings account.

3. Transfer the funds to a personal IRA Girl Ninja hasn’t yet created.

We ruled out option one in the blink of an eye. There is no way we were going to leave the funds in a School District account that she can’t access. Option two, although appealing (who wouldn’t want a couple extra grand in their bank account?) also was a bad deal since we would have to pay federal and state income tax on the funds…plus an additional 10% penalty for taking an early withdrawal. That would have ended up as a net $3,000 payment to us, but nearly $400 in fees being paid to the IRS. Who the frick wants to give the IRS $400 of money they don’t deserve? We sure as heck don’t, so we did the responsible thing and created a personal IRA for Girl Ninja so we can have all $4,000 rolled in to her new account. What’s more, I’ll get to include that $4,000 in our next Net Worth update which, if you couldn’t guess, makes me a happy camper. This story had a happy ending…

Now let me share with you a story that makes my heart hurt.

Someone I know recently passed away. He left behind a pregnant wife (lets call her Jane) and three children. I also know, when he filled out his life insurance forms six years ago (before he had any kids), he put his wife as a 60% beneficiary, and his parents as 40% beneficiaries of his $175,000 policy.

The tragedy in this story, aside from the untimely death of this young man, is that I can say with reasonable confidence had he actually thought about the life insurance paperwork he filled out (pre-family) in 2006, he would have made sure his wife/kids were the sole beneficiaries on the policy in 2012.

Instead, I’m literally watching the money his parents received be squandered away. They even had the nerve to approach Jane at their son’s funeral and ask her when they could expect their cut of the life insurance policy… so they could buy a new car. Ugh ūüôĀ

Jane is forced to watch her ex-in laws blow $70,000 on things like cars and washer and dryers (they posted a picture of their new W/D on Facebook last week), instead of having that money go towards a house, groceries/diapers, or college tuition for her kids. And to think, this whole ordeal could have been avoided if that old life insurance form was simply updated.

If this doesn’t serve as a kick in the butt to get your unfinished business taken care of I don’t know what will.

What unfinished business (financial or otherwise) have you been putting off? Creating a will? Changing your name? Opening an IRA? Finishing up those last few classes to get your degree?

p.s. I just realized I still need to make Girl Ninja the sole beneficiary on a few of my pre-marriage accounts.

Attention all dads: quit being crappy dads.

As you all know Girl Ninja and I are heavily involved in a high school outreach called Young Life. We’ve gotten pretty close with our freshmen over the year, and as such, they’ve really started to open up to us about their lives. If there is one common thing I’ve noticed in each of these kids’ life stories it’s this: Most of their dads suck at being dads.¬†

Walking away from your marriage is one thing, but walking away from your entire family brings you to a whole new level of douche-ism. From physical, verbal, and sexual assault, to drugs, infidelity, and neglect; these kids have dealt with more than any person, let alone a 15-year-old, should ever have to.

I was talking with one of my guys about his parent’s pending divorce (his dad cheated on his mom with a prostitute), when he said something pretty darn mature. He said “While I don’t really have a good example of what a father figure should look like, I’ve feel like I’ve learned from my dad what NOT to do when I have kids.”

While it totally sucks that this kid doesn’t have a solid father figure in his home, I’m encouraged by the fact that he understands that his dad is a crappy dad, and uses that as motivation to NOT follow in his father’s footsteps.

Isn’t that a lesson for us all really? Heck, I bet we can even apply that to our personal finance journey, can’t we? Who amongst you has learned WHAT NOT TO DO in regards to your money, spending habits, etc from someone else’s terrible choices? Who was that “bad example” in your life; mom, dad, sibling, grandparent? We love modeling ourselves after people like “insert clich√© Personal Fiance Guru here”, when in reality people like Nicolas Cage can be just as influential…albeit for a completely different reason.

Your neighbor could be a pedophile.

We bought a house! Ha, yeah right, but as I see those interest rates continue to creep lower, the PF nerd in me says “Now, Ninja. Now!” Two years ago people were saying the market had bottomed, but here we are with sub 4% interest rates. Who woulda thunk it?

While I’ve shared many times before the reason renting is clearly the better choice for us, even in this buyers market, that doesn’t mean I haven’t flirted with the idea of becoming a homeowner. I play with mortgage calculators all the time. Crunching numbers at various mortgage amounts, down payments, and interest rates; doing my best to figure out what combination of the three makes the most sense for us.

I search Redfin and Zillow almost every day looking at what’s out there, seeing if anything tickles my fancy. Usually nothing does, but¬†occasionally¬†a few gems pop up. I love not only viewing what’s currently for sale, but looking back at “recently sold” houses to get a true understanding of a homes value.¬†I’m doing everything I can to educate myself on local market conditions, and crunching all numbers possible so when the right house pops up, Girl Ninja and I can gobble it up quickly.

That said, there is one thing market research and number crunching will never be able to tell me; Who lives behind the doors in the surrounding houses. 

The idea of committing to residing in a single location for more than 12 months is already scary enough to me, let alone thinking about living adjacent to people I might want to punch in the face.

Let’s examine a real world example, shall we?¬†

My parents, and Girl Ninja’s parents both bought their houses around the early 1990’s. Both homes were new construction, in nice/new neighborhoods at the time. Fast forward 20 years later, my parents neighborhood has unfortunately gone to hell in a hand basket, while Girl Ninja’s parents neighborhood is as beautiful as the day they moved in. Over half the houses in my parents cul-de-sac are in foreclosure. Many of the neighbors are the epitome of white trash, frequently hosting bonfires in the middle of the street until 3am. Few neighbors actually care about the appearance of their lawns and homes. It’s sad.¬†

This is no fault to my parents. They had no control over who moved in over the years (my parents are one of only two original owners). They can’t force their neighbors to mow their lawns, to not park 87 cars in their driveway/yard/street, to paint their house every 10 years, or to pay their mortgages and not get¬†foreclosed¬†on.

This my friends scares me. Even if we do find the right house, owning comes with the inherit risk that your neighbors could still be douche bags. When you rent, if your neighbors suck you simply move. Owning doesn’t afford one that same luxury. Heck, even if we get a great feel from the neighbors, there’s nothing stopping them from selling their house to a registered sex offender 2 years later.

Ugh.

deep down inside I want to buy a house. I know it’s a great time. I know there are tax benefits and it’s ultimately an investment, but until I can get past these psychological barriers, renters we shall remain.

Those of you that own, I’d love to hear your opinion on your neighbors (love em, hate em, or don’t know em)!? Anyone else seen a neighborhood with a lot of potential like my parents, take a turn for the worse? How does one adequately take in to account in the “neighbor factor” when purchasing a home?

p.s. I should be clear that my parents neighborhood is by no means a total dump and they have a ton of equity in their house, but even they would agree it’s not the neighborhood it was when they first moved in.¬†

“I’m living the life I wanted 10 years from now.”

One of my buddies, who works in finance for a major bank, told me he recently attended a small group with a few of his good friends from college. During the small group, one of the members began reflecting on his life. He has a good job. He and his wife bought a house in a nice part of Seattle. I think they have a dog. And my understanding is they both have relatively stable employment. They are living the dream. Or as my friend’s friend put it the night of their small group, they are living the life they want to have when they are 35, nearly ten years away.

Can I get an amen?

I know we don’t own a house and I know we don’t have any kids, but gosh darn it, sometimes I don’t want to play grown-up anymore. I only get to be in my twenties for three more years.¬†Mortgages¬†and diapers are not far off. Why then am I not living it up? One word…

Responsibility. 

Retirement isn’t going to pay for itself. My savings account only increases if I keep showing up for work. And Girl Ninja only gets to be a stay-at-home mom if we start planning for that lifestyle change now. The life I want in five, ten, and forty years, prevents me from living the life I want right now.

I don’t know about you, but that depresses me.¬†

If you’ve been following my blog for a while you know I love my job. That said, it is also the thing that is holding me back the most. If I got fired tomorrow, I wouldn’t go look for a similar position somewhere else. You wanna know what I would do?

I WOULD TAKE THREE MONTHS OFF!!!

Not only would I take three months off. I’d make (or at the very least beg) Girl Ninja to quit her job as well. We would become vagabonds for no less than ninety days. We would be challenged in ways our currently safe, secure, and predictable life can’t. We’d be sporadic. Spontaneous. Scared. And Excited. We’d be living the dream. A 25 year old’s dream.

As with anything, our journey will have to be about balance. We wont be quitting our jobs and sacrificing our long-term goals anytime soon, but I’ll be damned if I catch my 35-year-old self wondering what the hell happened to my twenties. (pardon my french)

I guess this is why phrases like Carpe Diem and YOLO exist. 

Investments are where the heart is.

After my most recent Net Worth update, where I showed some serious losses in the stock market last month, a reader shot me the following email…

As someone who calculates his net worth and asset changes on a monthly basis, I am wondering how you personally react to wild market changes such as what has happened in the recent month of May.

Going into May for the year 2012, I had approx. an 11.2% return on my 401K.  I logged in today and saw that it hit negative returns for the first time. Should I hit the panic button and sell as much as possible, throw money into cash because I cannot find a decent return, or increase 401K contributions because the price is cheaper?

I know of at least one reader, possibly others, who would tell you to get out of the market. Not necessarily because of the recent declines, but because they believe the stock market in general is just a big Ponzi scheme.

While I guess one could try to make that argument, the fact of the matter is that for decades (centuries?) nothing has proven to be a better long-term investment than stocks. Nothing. That’s all the information I need to decide where I am going to put my money. The past is the best indicator of the future, and while there will definitely be days, weeks, months, and even years of negative returns, ultimately the trend has always been upwards.

I personally have no plans to get out of the market. Right now, last month’s losses are paper losses, not REALIZED losses. If you are expecting positive returns each month, then perhaps you should question why you are even investing in the first place? The worst thing I could do is buy in when times are good (at high prices) and sell everything when times are bad (low prices). Would you buy a house in 2006 that’s way overpriced and sell it for a 50% loss in 2012 if you didn’t have to? Probably not, unless of course you like overpaying for things and getting bad deals. Then by all means, sell everything!

I posed the question at the end of my net worth update “How do homeowners stomach making payments each month on a¬†depreciating¬†asset?” ¬†Stupid question really when you think about it. A house is a home first, an investment second. It makes sense that people will pay their mortgage even if the value drops because they obviously want to keep a roof over their head. Same goes for my retirement. I will still contribute to my retirement even during the “doom and gloom”¬†because¬†I want to be well taken care of in my days of gray hair and adult diapers.

Are you riding the market out or selling everything?