In a recent article on CNN Money, they recommended that you do one of five things with your tax refund, which will average around $2500, and they all revolved around either saving for a rainy day (retirement, emergency fund) or paying down the rainy days you spend shopping (credit card and other debts) so I wanted to ask you all… how will you spend your tax refund?
I don’t think so. My former employer recently instituted a policy where they would provide a sheet that detailed your total compensation for the year included with the raise (if you got one) for the upcoming year. The sheet broke down everything the company paid to employ you and it included your salary, education reimbursement, medical/dental/etc insurance, Medicare, social security, and perhaps some other stuff I forgot. Some feel that this was done so that the employee would fully understand how they were really compensated but I think it’s an insult to come right out and put it on a sheet, essentially saying “hey, be grateful we pay for all of this.”
Why? Well, the only legitimate “total compensation” value that anyone cares about is salary + education reimbursement, if you plan on going to school. The company has made no bones about the fact that they’re doing this to show employees how much they’re being compensated but a fair number have left the company for more pay. The only problem with doing this is that it doesn’t accomplish anything and can only bother people.
Anyone deciding to leave a company for greener pastures won’t forget to include education reimbursement because they are well aware of how much school costs and how much the company is paying for them. By putting that value and the cost of doing business, insurance and payroll taxes, you’re just telling your employees that they should be grateful because insurance and payroll taxes are relatively static and universal. Your payroll taxes will be the same regardless of your employer and your insurance will likely be very similar as well, certainly not a significant difference at least at our age.
So when an employee sees this sheet that says their total compensation amount is X and that’s a significant increase over their salary, wouldn’t the employee feel insulted? “Don’t leave for another company and a potential raise, stay here because you really make 30% more than what it says on your paycheck?”
What do you all think?
One of the best ways to negotiate a discount on a job or sale is to offer to pay for it in cash. There are a multitude of reasons why this is the case but if you ever want to knock a few dollars off, consider offering to pay in cash and see what the business says. This won’t work if you’re talking to a large national business and a salaried employee with very little latitude but it will probably work for everyone else.
Two of the main reasons why this works are totally benign but the third reason, in red below, is the biggest reason why this works and it’s along the same lines of a post I wrote in the past about paying tips in cash.
Credit cards have fees
When you pay with a credit card, the credit card company (and all the third party middlemen) extract a fee that amount to a few percent. When you offer to pay with cash, the business doesn’t have to pay these fees and so you can usually get a small deal out of it.
Financing has risk, cash does not
If you finance through the business (actually a bank or lender that has a relationship with the business), there’s an inherent risk involved because you might default on the loan. You can’t default on cash.
They can do potentially do the job or sale off the books
This is probably the biggest financial reason why a business would might give you a little discount, though they won’t say it, if you pay with cash – there’s no paper trail and they can avoid paying taxes on the income. If you view tax as an expense, such as building supplies, if you could suddenly do a job without paying 30%, you’d probably offer a discount for the job too. Unfortunately, this expense is nationally unavoidable and it’s illegal.
Now, back when I wrote about paying tips in cash, many readers left comments chastising me for recommending you pay tips in cash because you would be helping the wait staff, if they chose to, avoid taxes by underreporting their tips and thus avoiding tax. Now I pose this question to you (especially if you said paying tips in cash was ethically wrong), have you ever negotiated a deal using cash and do you see this as ethically wrong? Remember, you’re not doing anything illegal, the business owner may not skirt out on taxes, but by virtue of paying in cash it is possible that you could be enabling an illegal act (similar to the paying tips by cash, except this time you benefit too). I’m very curious to see what everyone says about this scenario!
If you have a moment, send Tricia some love as she’s going through a difficult time.
Now, onto personal finance stuff…
Nickel does a good job analyzing a mortgage refinancing offer. It’s a great post that you should read if you’re considering refinancing because often times people don’t look at the total cost to you, just the drop in monthly payment. By calculating the full cost, he saw that it wasn’t a good deal because of how the clock would reset (back to thirty years). On a slightly different note but still related to housing, Flexo discovered a tool that will help you figure out if you’re overpaying for rent. If I was renting, this tool would be crucial in the decision making process, overpaying on anything, especially high dollar things like rent, always bothers me.
FMF’s March Madness is still going on and it’s down to the Final Four, so get your vote on! Also, check out MBH’s dollar coin allowance – MBH’s been on a serious dollar coin kick lately.
On the consumerism front, JLP went to Sears lately and saw that they were fudging with their stats. If you’ve ever read Freakonomics, you probably aren’t surprised by this especially if there are incentives for coming in under time.
If you can get past the crassness, I think Jeremy’s article on burying for under $1000 is worth reading. Not knowing anything about this sort of thing, thankfully, it’s good to read it before you go through it – it’s a little less stressful now.
While not directly applicable to me, some of you may find this children’s allowance strategy insight helpful at Raising4Boys.
Lastly, SVB asks an interesting question: how much credit have you turned down? The estimate is half a million but considering how I get every single day in the mail and how I shred all of those offers, I wouldn’t surprised if it was considerably more. That’s not saying much because getting offered $5,000 credit lines a hundred times is different than getting one half a million dollar line but it’s still an interesting thought.
I received a notice in the mail yesterday from Citi stating that they would start charging balance transfer fees of 3% with no maximum ($5 minimum) starting April 3rd. Some Fatwalleters have reported getting these as well. The notice itself stated that this would be effective on the cards I already have so there’s no information as to whether no fee 0% balance transfers (and thus the balance transfer arbitraging that many people are now doing) is coming to an end but it’s certainly an ominous notice to be getting in the mail.
So, if you’ve thought about doing the balance transfer arbitrage thing, I’d get on it because the opportunity might be slipping on these. Here’s a quick hitlist of posts I’ve done on balance transfer arbitrage:
I was poking around Debt Hater this morning when I found her post about how she wasn’t deducting her charitable contributions to her church on the grounds that her donations (tithe) should be 10% gross, not net, and you shouldn’t be rewarded for doing it (the deduction). Here’s what she said:
My church provides every member with a receipt for the money they’ve given — in tithes and/or offerings — for tax purposes.
But I didn’t claim that on my taxes. It seems wrong to me. If you believe in tithing, you know that you tithe 10%. That’s gross, not net, because if you tithe net, then you’re paying the government before you’re paying God. So, if you get the money back through taxes, then you’ve gotten your blessing that way, and not God’s way, whatever way that may be.
The fundamental difference in thinking is probably with the perception of the deduction – DH sees it as the government giving you money (a reward) whereas I see it as you keeping your money. If you donate 10% of your gross income, you’ve actually lost 12.5% of your gross because 25% of that has gone towards the government. So if you’re paid $100, you donate $10, you’re actually down $12.50 because $2.50 of that $10 donated goes towards the government in taxes on income. The government has decided that donations are not considered income (in effect) so they let you deduct it, thus you get the keep the $2.50 because you gave away the $10 (the government is not rewarding you, you are merely paying less because you’ve in effect, out of your generosity, earned less).
Now, let’s say you still aren’t convinced that you should deduct it. If you deduct it, you can donate $12.50 instead of just $10 – thus not only are you not keeping it, you’re making your gift that much larger. Of course, now you deduct $12.50 on your taxes instead of $10 and the never-ending math cycle continues, but you get the idea.
As for the question of “Are you doing it to provide something to your community or are you doing it to hide money from Uncle Sam?” I don’t see how donating money is hiding any money because you don’t get that money back later.
DH, I think you should take the deduction.
What do you all think?
This promotion has ended.
Citi e-Savings has a hot new promotion for those of you who don’t already have (or have ever had) a Citi e-Savings account. Simply apply for a regular checking account and an e-Savings account by the end of March and collect your $50 payola. Unfortunately I can’t take advantage of this because I’ve had Citi e-Savings accounts in the past.
Also, if I had a Citi branch locally, I think I’d use the Citi e-Savings account because it’s really nice to be able to transfer in and out of an online savings account instantaneously. Right now I have ING and Emigrant and transfers out of those accounts take like four days, significantly longer than “instantly.”
Anyway, this is how you take advantage of the deal:
Terms:
To qualify for Free Citibank EZ Checking, you must apply online for both a new regular checking and e-Savings Account in the EZ Checking package by 03/31/2007. Your relationship package will then be free of monthly maintenance fees and per-check fees. Charges for other account-related services may apply. All accounts are subject to approval. Offer only available for first-time Citibank checking/deposit account customers, and is valid only once for any individual.
$50 offer is only available for first-time Citibank deposit (checking or savings product) account customers, and will be paid only once to any individual. Persons who currently have or at any time have had a deposit account at Citibank (or any of its predecessor banks) are not eligible. To receive this offer you must: make a single application for both a new regular checking and e-Savings Account in the EZ Checking package and open both accounts by 3/31/07. $50 will be credited to your regular checking account within 90 days from the end of the statement period in which your accounts were opened.
Thanks to the crazy folks over at the Fatwallet Finance forums for finding this deal.
Budgets are great, they keep you in line and they help you reach the goals that you’ve set for yourself and your family. The thing is, there’s a point when the budget stops being a means to an end and they start dominating your life… and that’s when you start tracking things to the penny. Listen, if you’re going to budget, experts advise that you track everything but I’m going to give you a few reasons why you should track to the dollar and not down to every last cent.
This particular DA is a little weak in the sense that the “conventional wisdom” aspect, budgeting to the penny, isn’t something that everyone thinks you should do but merely the default approach towards budgeting. Personally I do not budget (anymore), but when I did I budgeted to the penny and felt that technique was a little restrictive. I eventually stopped in part because of reason one. So, in this respect, I am truly the Devil’s Advocate and not merely playing the role for grins and giggles.
If It’s Hard, You’re Less Likely To Keep It Up
Let’s be honest, no one likes to budget in the first place because no one wants to feel like they have to track every single thing that they do because it takes the actual fun out of doing it. Going to the movies becomes “watch a movie, oh yeah I have to put $9.50 in my budget,” and you get a little bit away from the enjoyment of the movie. Also, if you have to track every last penny every single time, you’re probably going to put it off… and put it off… and then maybe not even track it at all! You want to put as few roadblocks in the way of you and your goal, of saving money to do X or pay for Y, and tracking to the penny is a headache that is a potential roadblock.
That Level of Visibility Not Necessary or Useful
$1.05 or $1? $50.87 or $51? Let’s be honest, when it comes to your budget, tracking to the penny really doesn’t get you all that much. Depending on how you opt to do the rounding, at the absolute maximum your budget will be off by the number of transactions you have; on average, you’ll be pretty close to your actual budget. If you always round up, you’ll be off but never short, which isn’t that bad when it comes to budgeting because you’ll “find” money at the end of the month. Unless you enjoy tracking down to the penny (and there are certainly folks who do and there’s absolutely nothing wrong with that), you can see how it doesn’t get you all that much more given the added effort.
That’s Not The Point
The purpose of budgeting is to track your expenses so you know how much you’re spending and what you’re spending it on. If you’re the type of person who blows their whole paycheck and has no idea where it went, budgeting is for you. If you’re trying to find places in your spending to trim the fat in order to pay off debt or save for something, then budgeting is for you. If you just want to keep an accurate picture of where you are, then budgeting is for you. In all three scenarios, tracking down to the penny is absolutely irrelevant and likely to derail your attempts to budget. Getting “close enough,” that is within fifty cents for each transaction or any of the other rounding tricks, is good enough and likely to keep you at budgeting a while longer.
I know there are a lot of readers who budget, so please share your strategies (down to the penny? round up? round down? keep a notebook? anything you want to share!) so we can all learn!
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