Death and Taxes

Update: I electronically filed our tax returns tonight. We will be getting a $2603.00 refund for federal taxes, and a $130.00 refund for state taxes. Woo Hoo! Time to invest, reduce debt, and pad my emergency fund!

Only two things are certain in life: death and taxes, or so they say. Hopefully the first one will be a while off, but tax season is immediately upon me. Tax season got off to a slow start for me this year, since I did not receive any of my three W-2 forms on time. And so began the great W-2 hunt of 2008 (well, 2007 technically).

The Radio Shack W-2 took the longest to track down, but it finally arrived after repeated efforts to contact human resources. Tracking down my W-2 from the community college was as easy as making a phone call to the payroll department and changing my address on file. The University of California fortunately posts its employees' W-2's on its "At Your Service" self-serve payroll website; so all I had to do for that one was log in and print it out. And finally, as of a couple of days ago, I have all of the information necessary to complete my wife's and my 2007 income taxes.


Actually I have become quite an expert in doing complicated taxes due to the fact that my wife has investments from her family, the dividends of which are being used to help pay off her student loans. My own taxes used to be as simple as doing the short form just a few years ago, but since getting married and since becoming an investor myself, I have had to learn the ins and outs of tax concepts such as capital gains, etc.

I am actually quite optimistic about this year's taxes for two reasons. First, I actually made quite a bit less money this past year than the year before, due to the lack of abundant teaching work in the area. And second, increased my tax withholdings to help prepare for the usual large tax bill that my wife and I have received for the past couple of years. The first item does not concern me so much, since I have been able to do more with less, so to speak, by regularly investing a portion of that smaller income. So despite the decrease in income, I have been very successful in putting aside money for retirement.

So the practical upshot of these considerations is that my wife and I should actually be getting a tax refund from the IRS this year instead of owing taxes. Should this happen as predicted, the question then becomes one of what to do with our tax money. There are three ideas on the table: we can put the money in the Roth IRA, we can use the money to pad an emergency fund, or we can use the money to pay off some of our small credit card debt. I am currently leaning towards padding an emergency fund, since we do not have an emergency fund currently established.

I know that the proverbial order-of-operations is supposed to be to set up an emergency fund, pay off debt, and then take care of the retirement fund (since the interest rate on the debt usually outweighs the potential returns on investments). However, I do not believe that these categories are mutually exclusive. Dividing up the money accomplishes the same goal overall, and one gets the satisfaction of seeing his/her investments grow while the debt is being paid off. So perhaps I have answered my own question: I will likely split up the refund into three equal chunks and place the money towards each of the three goals.

I plan to complete our taxes either tonight or tomorrow, and I will post a tax update when the taxes are completed and filed.

It Never Hurts To Ask

My wife and I were in San Francisco this weekend visiting with a couple old friends. We stayed at the JW Marriott just off Union Square. Since we were all planning to share a hotel room to cut costs, my wife booked a room with two beds and a cot. When we arrived, though, all that was available (at first) was a room with a single king bed. Despite our original protests, we accepted the room and resigned ourselves to being squished in a too-small room with two extra cots to take up any leftover space. My friend Tracy, however, would not let this state of affairs go un-protested, so she gave a call down to the front desk pretending to be my wife and gave them a significant piece of her mind. To make a long story short, the additional protesting paid off, and we were upgraded to an Executive Suite for free. While the Executive Suite still did not have two beds, it at least had a pull-out couch and plenty of extra room for a cot.

There is a very simple lesson here: do not be afraid to ask for what you want, because you just might get it. This applies not only to hotel rooms, but to all areas of personal finance. Don't like those late fees? Ask to have them removed. Don't like your high interest rate credit cards? Ask to have the rate reduced. In fact, I myself am on an interest-free payment plan to get my ginormous credit card balance paid off once and for all. All I had to do was ask for a reduction in interest so I could make the balance actually decrease, and Citibank immediately offered to waive the interest if I set up recurring electronic payments. One hell of a deal, but the key was asking for what I wanted. (Ramit from www.iwillteachyoutoberich.com would be so proud!) A little self-exertion can go a long way to creating the kind of life you want to live.

One Year Anniversary / Non-Apology

You regular readers may have noticed a significant lag-time since my last posting. Since I find it tacky and irrelevant to linger on this with a lengthy apology, you may consider this brief paragraph my non-apology for taking so long to update my blog. People get busy; it happens.

Now, on to business: I have reached the one-year mark as an investor, and I have a status update and some lessons-learned during my first year of investing for my wife's and my futures. Since I am not feeling inspired enough this morning to make a well-formed essay out of this, I will begin with a simple retirement fund update:


Roth IRA:

EFA (Euro-Asia Index ETF): 9.2381 shares @ $71.94/share = $664.59
IWM (Russell 2000 Index ETF): 9.7119 shares @ $70.56/share = $685.27
SPY (S&P 500 SPDRs Index ETF): 4.529 shares @ $136.15/share = $616.62
Money Market Fund: $50.35

Taxable Investment Account:

AAV (Advantage Energy Income Fund): 8.9718 shares @ $10.74/share = $96.36

University 403(b):

UC Pathway 2040 Mutual Fund (PDF File): 112.383 shares @ $12.39/share = $1392.15

University DCP:

UC Pathway 2040 Mutual Fund (PDF File): 79.559 shares @ $12.39/share = $985.54


Grand Total = $4440.53


If you are a regular reader, you will notice that my account balances have decreased a bit since my last update on December 1, 2007 (at which time my grand total was $5029.08). This is due to two central factors, the most significant of which is that the holidays demanded more of my money than I had planned, so I robbed my Roth IRA of my holdings in the dividend fund PEY. This lowered my account balance by $700 or so, resulting also in a $70 IRS penalty for an early IRA distribution. The second factor is the market downturn of the last few months, which is evident by the price per share of my various holdings. But the good news is that I have managed to squirrel away $4440.53 in the course of a year, which makes the $700 I had to withdraw seem not to bad by comparison (especially considering this was my first go-around as a beginning investor).

So what lessons can be drawn from the above situation and from looking back at the past year? First, the fact that I needed to withdraw money from my Roth IRA points to the fact that I did not, and do not still, have enough set aside for the purpose of an emergency fund. If I would have had a designated emergency fund, then I would not have had to rob from my retirement plan to make ends meet. So in the future, I must take actions to create an emergency fund in addition to my contributions to my retirement plans. After all, a retirement account serves little purpose if one must constantly withdraw funds to pay for regular or unexpected expenses.

Another lesson that can be drawn from the above situation is this: it is important to remember that the value of a long-term investment account will fluctuate widely in the short-term. It would be easy to panic when seeing a market downturn such as the most recent downturn and to withdraw the funds entirely. One must have the discipline to keep his (or her) money invested for the long-haul, regardless of short-term trends (or even trends of just a few years, for that matter!). It would even be a good idea to invest more than usual after a downturn on the relatively safe prediction that the market will again go up in the long run, as it has over the past several decades. On that note, I think I will make an extra contribution to my Roth IRA (and my new emergency fund, per my own advice above) just as soon as I am finished with this blog entry; to put my money where my mouth is, so to speak.

A tangential lesson over the past year is a lesson not in finance but in blogging. I began this blog in January 2007 with exactly zero knowledge on the subject of retirement investing. Since then, as my site's search statistics indicate, people have begun to use this blog as a source of investing advice and knowledge. While it is worth noting that I am not a qualified financial adviser, I can say that I have learned a great deal about how to set up a basic investment account for the proverbial everyman requiring a minimum of complexity and a promise of long-term rewards. That being said, I am excited to have become something of a lay-expert in the field of personal finance and investing, and I am grateful to all my readers who continue to look to my site as a source of information and inspiration to better their individual financial situations. 2007 was a very productive year for me financially, and 2008 should be even better, especially with the broad market indices (and their corresponding ETFs) on sale right now.

And finally, if you have not yet taken the time to subscribe to this site's RSS feed, you may do so by clicking on the button () in the right-hand column or by clicking here. Best of luck, and happy investing!