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March 25, 2010

Is it good to get a tax refund?

Filed under: Simulation, Uncategorized — Tags: , , , — thebalancedspreadsheet @ 12:52 pm

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With the deadline to file your 2009 Federal income taxes about three weeks away many people are starting to receive their much-anticipated tax refunds.  According to a recent article in USA Today, the average refund this year will be $3,036.  While it would be nice to receive such a large check in the mail, the questions needs to be asked, is it necessarily a good thing to get that much money back?

Reasons against getting a refund

The reason why it is not such a good thing is the reason why it is called a refund.  When you get a refund that means you overpaid your taxes for the year.  A refund of $1,200 means you overpaid the government an average of $100 a month! It does not mean you did anything special or good, it just means you gave the government too much money.  Worse yet is the fact that you do not get any interest on your overpayments so your refund is essentially a no interest loan to the government!  For those of us who are trying to get out of debt and budget every dollar each month that is not a good plan as it gives us less to plan with.

How to stop getting a refund

If you have consistently been getting a refund each yeah there are ways in which you can stop overpaying and keep your money in your wallet.  The most common is simply contacting HR or payroll at your work and raise the number of dependants you claim on your W-4.  Claiming more dependants will cause less money to be withheld from your paycheck and claiming more dependents on your W-4 then you actually have is not illegal as long as you are paying enough in at the end of the year.  Often claiming just the number of people in your house will not be enough because itemized deductions vary from family to family which basically renders the IRS withholding tables useless.   Typically I claim anywhere from 4-6 dependents even though it is just my wife and I on our taxes.

My opinion

My goal is not have a big refund each year.  I try to estimate my total taxes each year and usually come within a $100 or so.  But owing taxes is not something I want to have either.  By having approximately the correct taxes withheld each month it allows me to budget properly and gives me more money to save, invest, and spend each month.  If instead I just got a big refund I would be more prone to spending it on big items instead of saving or investing it.  So if you are struggling to pay the bills each month yet are getting a refund each year you probably need to put an end to it soon because you could really use your money now instead of later.    While getting a big refund once a year might seem exciting, you are better off financially using your money throughout the year.


March 14, 2010

Mortgage Amortization schedule

As I promised in the Standard Deduction post, here is another spreadsheet.  This one is a mortgage amortization schedule spreadsheet.  Ever wonder how much sooner your mortgage would get paid off if you paid $50.00 a month extra?  Or how about a $2,000 one time extra payment because of a big tax refund?  You will be able to find out by inputting just numbers into four different cells.

Mortgage Amortization Schedule

1.)    Current Loan balance-In cell F1 input your current loan balance.  Note that this is your current balance not the original amount you paid for the house but rather how much is owed currently.

2.)    Payment-In cell F2 enter your principal and interest payment per month.  This does not include any taxes or insurance that is included in your payment just the principal and interest.

3.)    Interest rate-In cell F3 enter your interest rate.

4.)    Current month-Enter the number of the current month (IE January=1, February=2, March=3, etc).  For example since the current month is March, I would enter the number “3” in the spreadsheet.

5.)    Extra Principal-Enter any extra principal payments made in the month in the “Extra Principal” row for the month(s) that you made the extra payment.

Also remember that this spreadsheet will only work for those who have a fixed rate mortgage.  I hope those of you who are trying to pay off their mortgage early will find this spreadsheet helpful.  Feel free to comment if you have any questions or suggestions and please let me know if you find this helpful.

March 12, 2010

How much does a new car really cost you?

While thinking at work the other day my thoughts turned to cars, especially new cars. Having a new car would be fun and nice to show people but I got to wondering how much does a new car really cost? I keep reading articles on the average new car price, the average car payments, and how much a new car depreciates, but after doing some research I now have a clearer picture.

After digging around and doing some research, I came across some recent data from Automotive Digest. The average new car purchase price is $24,265 with an average payment of $453 over 64.4 months. Finding depreciation rates was a little difficult as it varies from car to car, but the consensus is that a new car loses 25% of its value in the first year alone and then anywhere from 15%-20% each year for the next 4 years and by the end of the 5th year the total depreciation is approx 65%! Assuming a $24,265 purchase price with $453 a month payments over 64 months, I made a graph showing the car value v. car loan balance as well as a chart breaking down the payments.


As you can see from the graph above, with the big depreciation hit in the first few years the car is actually “underwater” for the first 2 and half years, meaning you owe more on the car than what is it worth. The chart on the right shows the total loss with the car in the last two bottom columns. At the end of the 6th year you will have paid nearly $29,000 in payments and the value will only be about $7,300 for a total loss of ~$21,700 or $300 a month!

What if you instead invested the payment monthly into a mutual fund? I did the math using a 10% annual rate of return and calculated the following:

After six years the $29,000 paid into the mutual fund would be approximately worth $44,000 or a $15,000 gain. That is about a $36,000, or $500 a month, difference over buying a car. Just for fun, what if you decided to not buy a new car for your working lifetime (40 years). What would you have?

After 30 years you would be a millionaire and after 40 years you could retire with over $2.8 million! Hope you find the car enjoyable. I think then you would be able to drive any car you wanted to.

As you can see, over time the new car with a payment will cost you big time. Obviously you need a car, but what if instead of buying a new car every 5-6 years you instead decided to buy a used car paid for in cash? In our simulation the average car is approximately worth $10,000 after the fourth year. That is still a lot of car for a fraction of the original cost. Basically by driving a used car, you are driving a nice car while investing for your future and letting someone else take the initial beating in the depreciation, how can you go wrong with that? Sure it is not the cool thing to do and it might not be the most convenient thing to do and your friends and family will probably make fun of you, but in the long run you will be better off financially.

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February 24, 2010

Standard Deduction Spreadsheet

The other day I realized that even though the name of this blog is The Balanced Spreadsheet, I have not actually posted any of my spreadsheets that I have developed.  With the deadline for filing your 2009 Federal income taxes being less than 2 months away I thought I would share a spreadsheet that helps calculate your taxes for those who take the standard deduction.

To access the spreadsheet simply click on the link below, then in the browser click on download in the top left corner and then you will have the option to save or open the spreadsheet.  It contains three tabs for each filing status:  single, married, and head of household.  Simply fill in your dependents, W-2’s, interest income, and other information in the yellow cells and your total tax will be shown in cell F12.

Standard Deduction Spreadsheet

Remember that this spreadsheet is not an official IRS spreadsheet so results could vary.  This is to be used simply as a guide.  I have checked this spreadsheet but that does not mean there are any errors, if you do find any please let me know.  It is greatly appreciated.

I hope to keep adding more spreadsheets here and there and will eventually put them all on one page.  So if you file your taxes with the standard deduction, please try it out and let me know what you think.

February 18, 2010

Are Reward Checking Accounts worth it?

Filed under: Real Example, Simulation, Uncategorized — Tags: , , , , — thebalancedspreadsheet @ 11:54 am

If you have been paying attention to your savings account interest rate lately you have noticed a very depressing looking rate earned on your money.  Most of the time it has been less then 1%, but there is good news for those who want to earn a decent rate on their checking.  Many small local banks and credit unions have started to offer reward checking accounts that let you earn anywhere from 3-4% APY depending on the bank.  Reward checking has been around for 2-3 years and there are some hoops that need to be jumped each month to receive the desired interest rate but for many including myself it is worth the effort.

The 3-4% may not seem a lot but when compared to 1.25% the results are pretty significant:

Reward Checking Interest Comparison

Based on the example on the right, if you had $20,000 in a checking account you would receive about $45 more a month in interest using a reward checking account compared to a regular savings account.  I would recommend first going to either or to where you can do a search to find the closest bank or best deal.  Just like certificates of deposits or savings accounts, each bank has its own rate and requirements.  While the higher interest rates are nice, there are some drawbacks that should be considered before going through the paperwork and hassle of switching banks. 

The first drawback is the balance limit.  Most of these accounts have a cap of $25,000 (some have $50,000 cap, with lower rates) meaning you will only get the high interest rate up to the cap limit then anything above the cap receives a low rate, usually below 1%.  Therefore there is a limit on how good of a deal this can become.

The next drawback is the monthly requirements.  You will want to make sure that the requirements are met each month because if you do not, the interest rate earned plummets to around .25% for that month.  Most of the requirements are pretty simple and convenient, enroll in monthly electronic statements, have direct deposit or online bill pay once a month.  But the debit card requirement is the one that trips most people up.  The requirement is that you must make anywhere between 10-14 debit card purchases a month.  Those who use multiple credit or debit cards can sometimes find it hard to keep track of how many purchases a month you have made.  Remember missing the purchases by just one means you forfeit the interest rate for the entire month.

Finally the last drawback is that usually the interest rate drops a few months after the introduction of the account.  This happened to me with my reward checking account through Charter Bank of New Mexico.  I signed up in the winter of 2008 with the rate at 6%, which it later dropped to 5%, then 4%, and as I wrote about back in November it dropped all the way down to 1.25%!  The bank ended up getting bought out and the rate today is a depressing .25%.  While this is an extreme example just remember that the nice looking rate might drop a percentage point in a few months. 

Overall I find that high interest reward checking to be a very nice feature.  I just recently opened a new account with Farmer’s Citizens Bank that pays 4.01% APY with a $25,000 limit and 12 required monthly debit card purchases.  The purchases requirement does not bother me much because I use my debit card anyways on most of my purchases so there is nothing that I need to do special to meet the requirement.  The interest earned will not make me rich but it is still nice to get about $50.00 extra a month more than I would if I just left it in a regular savings account. 

Are there any other interest rate chasers out there that have tried reward checking?

January 9, 2010

The Financial How to series Part I. How to start a budget

As a New Year is upon us, many people are making their New Year goals and resolutions. In these economic times, one of the more popular goals is to get financially healthy. This goal ties in to a new series from The Balanced Spreadsheet titled “The Financial how to . . . . “. During the month of January I will have posts with helpful hints on how to get started with some basic financial principles such as getting out of debt, building an emergency fund, saving for retirement, and more. Today’s topic is how to build a budget.

I decided to start the series with budgeting because a budget is the first step towards reaching your financial goals. Many people hate using the dreaded “B” word because to them a budget is constrictive or limiting their freedom. However those who do a budget find it more freeing then they imagined and now see it as an essential part of their finances.

How to start

The first thing you will need to do is find a budget format that works for you. A simple budget search on Google or through Microsoft brings up many different templates. I recommend keeping it very basic to start by keeping your categories very broad. For example I just have an entertainment category instead of having a separate category for movies, sporting events, concerts, etc. For those who may not be computer savvy, a basic pencil and paper budget will do just fine.

Determine your take home pay

Next thing you will need to do is determine what your monthly take home pay is. Your take home pay is simply your gross income less what is taken out of your paycheck for things such as taxes and insurance. For those of us who are salaried this is pretty simple as it is the same every month. Those of us who are paid hourly will need to estimate how many hours they will be working for the month and determine their estimated take home pay. The hard part is for those who get paid bi-weekly, because two times a year they get three paychecks in a month instead of two. In this situation, I recommend making a budget based on two paychecks a month and when a three paycheck month comes you can simply use that money to either pay down on existing debt, or if you are out of debt, to save for something special such as a vacation or for Christmas.

Preparing the Budget

After determining your take home pay you are now ready to make your budget! I break down the budget into three main categories: Necessities, Fixed items, and Luxuries

Necessities-Obviously these things are the most important expenses each month and will get paid first in order:

I have food first because if you have enough money to do only one thing each month it would be to eat. Next would be keeping the heat and electric on, followed by your housing, and finally your transportation.

Fixed-These are your expenses that stay the same every month. Common examples could include your phone bill, contributions to a 401(K) or IRA, or car insurance. Also included here are any minimum debt payments such as credit card payments, student loans, or car notes.

Luxuries-Whatever is left goes into the luxuries category. This is where the biggest decisions have to be made. You have a finite amount and usually more wants then what you have money for. In the end you have to decide what is more important to you between eating out, buying clothes, going out for entertainment, or any other thing.

Carrying out the Budget

You have now taken the time to setup and prepare the budget and now this is the most important step! Every time you make a purchase keep track of what category it belongs to. If you reach your budgeted amount before the months ends, you are done for the month or you take away from another category. As you go along you will be amazed at how much money you are spending on certain things. It will also get rid of the question in your head “Can I afford this?” every time you make a purchase because you will have budgeted the purchase ahead of time at the beginning of the month.

How to budget with an irregular income

You might be asking what about those on irregular incomes. Those who are on irregular incomes have a little trickier time doing a budget. But by dividing your budget into the three categories you will be able to prioritize what you will spend your money on. Start with your necessities and go down from there in order until you run out of money for that month. Next month start at the beginning and work your way down until you run out of money for that month. Also for those whose paychecks are seasonal, it would be wise to save money in the good months to help cover the bad months.

I hope you find this helpful. For those of you who have never done a budget before it may seem like a daunting task, but just start and you will get better at it as time goes on. When starting out you will make many mistakes and your budget will change a lot until you can get comfortable with your income. That is ok! Budgeting is best when done with trial and error! For those of us who have been budgeting a while this is a nice review

Next week we will continue in our “The Financial how to . . . .” series with, how to get out Debt.

November 25, 2009

The Ohio Marriage Penalty

Filed under: Excel fun, Personal Finance, Real Example, Simulation, Uncategorized — Tags: , , , , — thebalancedspreadsheet @ 11:50 am

With 2009 quickly coming to a close, it is that special time of the year again. No, not Thanksgiving. No, not “Black Friday”, but time for year end tax planning! I know tax planning is not the most exciting thing in the world but I do feel it is important to keep an eye on it to make sure you are legally minimizing your tax bill as I have written before on how much you really pay in taxes.

Since I got married in May I was going ahead and running the numbers for Ohio’s income tax to see what the tax difference is between married filing separately and married filling jointly. I knew that there would be some difference, but I was a little surprised to find out that it will cost us about $460 more to file married instead of separately!

As you can see from the chart here, Ohio’s state income table is the same under any circumstance unlike the federal incomes rates which changes depending on whether you are single, married filing separately, married filing jointly, or head of household. For example that means if you are married filing jointly and you both make $40,000 Spouse #1 pays the same tax as if they were single. However, spouse #2’s $40,000 would get taxed at 4.109% instead of starting at .587% and moving up in $5,000 increment until the final $20,000 gets taxed at 3.521%. Ohio does get a 5% tax credit for filing jointly but does not come close to covering the gap.

Now we could file separately and avoid the marriage penalty. However in Ohio you have to file whatever you file on your federal income taxes and filing separately would make us ineligible to fund ROTH IRA’s for 2009 and the tax free growth of ROTH IRA’s is more valuable then the $460 long term. IT is disappointing though to pay more tax simply because you committed the “sin” of marriage. J

Overall the $460 is not going to change our life either way, but perhaps this why Ohio’s growth rate is among one of the lowest in the nation.

November 13, 2009

Benefit Enrollment

Filed under: Real Example, Simulation, Uncategorized — Tags: , , , , — thebalancedspreadsheet @ 1:59 pm

My 2010 health benefits enrollment period for my employer ends today at midnight.  It always brings some interesting conversations at work as co-workers are scrambling to figure out if their plans changed in either coverage or in price, and how theses changes affect them.  Thankfully, the only change to our benefits was a help to us as our high deductible on our Health Savings Account (HSA) plan dropped from $5,000 to $3,000!  That was pretty cool to find out that the maximum out of pocket expense we would be responsible for reduced by $2,000.  I personally love the HSA, and am planning a review of it soon.  We dropped our dental coverage down to cover just basic checkups as we do not plan of having any major dental work this year.

As always it is a good idea to check to see how your plans compared to any new ones your employer might add this year.  You might have had the same plan for years, but your current health might dictate a change in coverage.  It is also good to keep on ways to lower the cost of your premiums or get better coverage for the same amount.

November 11, 2009

The Importance of an Emergency Fund

Filed under: Personal Finance, Real Example, Simulation — Tags: , , , — thebalancedspreadsheet @ 10:50 am

When getting financial advice from financial planners, either on TV, through books, or, most highly recommend keeping an emergency fund handy.  The last few weeks have really enforced why we do have an emergency fund in place.  First, my wife got into an accident driving to work on a wet morning a few weeks ago.  Thankfully she was all right but the car was not as it needed a new back bumper and had to be taken to the body shop for a few weeks.  Next, last Wednesday when my wife and I were getting ready to leave our house when we discovered that our electric garage door would not open at all!  After getting a repair man to come out and fix it that night, it was discovered that we had a broken spring in our garage.

All in all, after paying for our deductible, new tires, a rental car for my wife while her car was in the shop (which the insurance picked up about 80% of), and the garage door repair man we were out roughly $875.  Thankfully with the emergency fund, these situations were not true financial emergencies, rather just financial inconveniences. 

All this has made me think of how essential the emergency fund really is in one’s financial plan. Unexpected expenses occur all the time, you just do not know when and importantly how much.  It will be very difficult to plan and budget correctly without an emergency fund because you will constantly be putting out fires that arise, whether it is job loss, car problems, leaking roofs, broken heater system, etc.  Having the emergency fund in place will give you peace of mind as well as the ability to financially bounce back quickly if something major occurs.  Unfortunately it does take times like we have had the last few weeks to realize why you do have the emergency fund.

November 9, 2009

What do when you car is Under Water

When people decide they are ready to get out of debt, one of the first things they try to get rid of is their nice car with the big stinking payment of $300+ a month.  However, when they get ready to sell the car they realize that they owe more on the car then what they can sell it for.  This is commonly known as “being underwater”.  Some just assume then that they are just stuck with the car until they can pay it off but that is not true as there are some options one can take to get rid of the car loan.  Below are the steps to be taken to get out from a car loan that is underwater.

  1. Determine what the car is really worth-Sites such as Edmunds and Kelley Blue Book are two good sites to get this information.  Enter your cars information such as make, model, year, and mileage and get a value.  Use the private sale price instead of the dealer price.  The dealer price is what a dealer is willing to give you which is at wholesale, while private sale is the retail price and will be higher then what a dealer can give you. 
  2. Determine how much you are underwater-After determining your cars value, find the loan balance from your latest statement and subtract the cars value.  That is how much you will need to borrow to cover the difference.
  3. Line up a loan for the difference from a credit union or local bank-This is the most difficult part of the ordeal and you will need to make sure this part is taken care of before you put the car up for sale.  Getting a loan through the dealer that you bought the car is next to impossible so your best chance is at a credit union or local bank.  If you have your car loan through a credit union or local bank already then they are probably be your best bet to get an unsecured loan because basically they already have one if the car is underwater.  You might have to go to everyone in town until you find one willing to loan you the difference.  The interest rate will undoubtedly be higher but you will have a loan at a fraction of what you would have owed.  If no credit unions or banks will loan you the money, you can always try and put the deficit on a credit card, although that is as a last resort.
  4. Sell the car-After lining up the loan you are now ready to sell.  When you find a buy you will give the buyer the keys and a bill of sale.  You will then take the money from the sale along with the loan money and send them to the finance company.  You will then receive the title in about a week and you will then send it to the buyer.
  5. Pay off the loan as quickly as possible!-The sooner the better obviously.  You will be more motivated then ever now since you will be paying for something you do not even own anymore!

Real example-So using some numbers let us assume you have $20,000 car loan and after doing some research you find out you can sell the car for $16,000.  You go to your bank where you have your financing and receive an unsecured loan for $4,000.  After selling the car for $16,000, you send in $20,000 ($16,000 from the sale and the $4,000 you borrowed) to pay off the car.  A week later you get the title in the mail and go ahead and give it to the buyer.  All you have left then is a $4,000 loan that will be paid off very soon and will give you the cash flow you need to create wealth. 

Hopefully you will never be in this position, but however if you do find yourself under water on your car, just realize that you can get out with a little patience and persistence.

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