Finance for a Freelance Life

Filing Your Federal Income Tax Return – Textbook Personal Finance

Mrs. Micah — Fri, 19 Mar 2010 10:00:42 +0000

This post is part of the textbook personal finance series which covers basic personal finance skills by going through an actual textbook, chapter-by-chapter. Check out the intro post for more information.

Last week we talked about the basics of federal income taxes, how they’re calculated and paid. This week we’re going to be talking about that lovely activity we all do by April 15th—filing.

Once again, let me state that I’m working through a textbook and offering information about taxes but not professional tax advice or information.

Who Must File?

Every citizen or resident of the United States (including Puerto Rico) is required to file a federal income tax return if his or her income is above a certain amount. The amount is based on your filing status and age.

There are five filing status categories:

Single — either never-married, divorced, or legally separated with no dependents. You must file for 2009 if your income was over $9,350 (or $10,750 if you’re 65+ in 2009).
Married, filing jointly — combines spouses’ incomes. You must file for 2009 if your combined income was over $18,700 (or $19,800, for one spouse or $20,900 for both spouses, if you’re 65+ in 2009)
Married, filing separately — Each spouse files his or her own return (not the same as single). You must file for 2009 if your income was over $3,650 (no matter how old you are).
Head of Household — unmarried or surviving spouse who maintains a household with dependents (for whom they provide at least half of their support). You must file for 2009 if your income was over $12,000 (or $13,000 if you’re 65+ in 2009).
Qualifying widow/er with dependent child — an individual whose spouse has died within the past two years and who has a dependent. You must file for 2009 if your income was over $15,050 (or $16,150 if you’re 65+).

If you made less and had taxes withheld, then you’ll probably still want to file in order to get the money back!

Note: Self-employed/freelancers must file if they earn at least $400, a much lower number.

Which Tax Form Should You Use?

There are three basic forms used to file income tax. Form 1040 is the standard long form which has sections for all types of income. If your income is low enough and you have a simpler return, you may be able to file 1040A. 1040EZ is the simplest form but does not allow you to make the same adjustments to income or claim the same tax credits as the 1040A or the 1040.

I’m going to cut down on what the book says here because I don’t want to be responsible for someone using the wrong form. If you’re filing a simple return, you may qualify to file for free with one of these programs. In that case, you don’t have to choose a form, the program walks you through and files whichever one fits your needs.

The 1040X form is used to file an amended retun. You can use it if you’ve discovered another source of income or, better, if you’ve discovered some useful new deductions.

What is the Process for Completing a Federal Tax Return?

This list takes you through the sections of a 1040, based on a list in the book. It was written several years ago, but I verified it with the 2009 Form 1040 and it still applies. Terms on the list are explained more fully in this post. If you’re a freelancer or sole proprietor, your taxes will be more complicated, as you’ll have to use Schedule C too.

Filing status and exemptions. Select your filing status and list the number of exemptions you’re claiming: yourself, your spouse (if applicable), and anyone you’re claiming as a dependent. You’ll need to list the social security numbers of your dependents (as well as yours and your spouse’s at the top of the return).
Income. Earnings from your W-2, as well as 1099s from interest or investments.
Adjustments to income. Adjustments you’ll use to compute your AGI.
Tax computation. In this section, you take your AGI and deduct the standard or itemized deductions and exemptions. The number you compute here is the basis for determining your tax. You then find out your tax owed by checking the appropriate tables.
Tax credits. In this section, subtract any tax credits for which you qualify from your taxes owed.
Other taxes. Any special taxes, such as the self-employment tax (joy!), are calculated at this point.
Payments. Your total withholding or other payments made.
Refund or amount you owe. If your payments exceed the amount of income tax you owe, fill out the refund. If you did not pay (withhold or make estimated payments) as much as you owe, you’ll need to make an additional payment. You can fill in your banking info here to have it directly deposited into your account.
Your signature. Would you believe that forgetting to sign is one of the most common tax errors? When filing electronically, you sign with a special PIN.

Stay tuned for next week’s topic: What if I get audited?

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Remembering that Freelance Is a “Real Job”

Mrs. Micah — Wed, 17 Mar 2010 10:00:11 +0000

If you asked me if I work 2 jobs, my first response would probably be “no.” I’d say that I have a full-time job in the field that I want to work in. Oh, I’d then add, but I do a little work on the side to bring in extra money for debt repayment, grad school, etc. How much? Not every day, three or four days a week maybe. Well, last weekend I worked 14 hours for two clients.

Besides following 5 days of 8-hour shifts, an average 7 hours of freelancing is very different from an average 7 hours at my day job. No coworkers, fewer distractions, and a lot more time spent focused on the work. Sure, working with Mr. J. Money (who apparently covets my external hard drive) in person was a lot of fun, but we were also focused on a huge project—the most complicated Blogger to Wordpress migration I’ve ever done (Blogger FTP vs. regular Blogger).

Half the time, I remember that it’s very much a real job (with real clients and real taxes and real work that gets done). The other half, I find myself wondering why I’m so tired or why I can’t find time to do something (until I look at my schedule). It’s not that I neglect the work itself, I find the work very engaging and prioritize it in my schedule, I just neglect the so-called “work/life balance.”

I still haven’t figured out how to keep myself fully aware that I have two jobs, but it’s something I’m working on both for now and for when I start grad school in the Fall. Things that I’ve found help include:

Using a Calendar to Manage All My Clients — Some weeks I don’t, and even if I just have one client that’s just dumb. I also grant all my google accounts access to each other’s calendars & store my events on one calendar which I can access from any of them.
Using a Calendar to Schedule My Personal Life — I’m not an extremely social person & a week can go by without my having any commitments. But when I do make them, I hate to have to cancel because I realized I scheduled a client. And I hate having to move a client even more. So I combine my business and pleasure calendars to make sure that I avoid scheduling conflicts to begin with.
Taking Time Off Between Clients — This is something I need to do because I have a full-time day job as well. I can’t work every night and weekend or 1) I don’t fulfill my other responsibilities & 2) I start to go a little nuts. But even full-time freelancers need to consider their time off between clients. Whether it’s scheduling an hour for a breather, making sure that you’re not working 7 days/week (unless it works for you), or just finding a few minutes here and there, try purposefully taking time off between clients & projects.
Book Myself — If I didn’t freelance, I’d have a lot more time to write for this blog (and I’d have to write about a different topic) as well as more time to work on my other projects. As it is, I try to schedule blocks of time where I update plugins, do theme work I need to get done, and just write. Otherwise, doing one kind of project can take away from your other projects.

This is what works for me. What matters the most is that I always keep in mind that what I’m doing has the same effect on my life as working any other real job would.

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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5 Ways to Hurt Your Credit History Without Using Credit

Mrs. Micah — Mon, 15 Mar 2010 10:00:29 +0000

Last Friday’s post on My Next Buck (a “Friday Financial Foul-Up”) reminded us that late movies can hurt your credit report. In fact, not returning a movie can keep you from being considered credit-worthy enough to rent an apartment.

Your use of credit cards, loans, and other forms of credit aren’t the only items that show up on a credit report and affect your financial power, not just to use credit but also to get important things like apartments and possibly even jobs. This is called “alternative credit data” and while it doesn’t necessarily influence your credit score, it’s something that lenders and even potential employers can see.

Even if you don’t use credit at all, these things can still show up on your credit report.

Defaulting on Rent

Speaking of that apartment—your landlord can report evicting you for non-payment of rent. Whether or not they choose to do so depends on how they’re set up. A person renting their second home is less likely to do so than a large property management company.

Unpaid Medical Bills

Unpaid medical bills can turn into a nightmare. Not only are they often turned over to collection agencies (and there are several levels of collections, from companies that help small doctors with small staffs follow-up on bills to companies that live up to every negative image we have of collection agencies), but if unpaid they can appear on your credit report.

Unpaid Library Fines

More and more library systems are teaming up with collections agencies to handle their unpaid late fines and lost book collections. Library materials and fines add up. With circulating materials which include videos & audiobooks. It doesn’t recoup all their money, but if they can get $0.10 on the dollar then it’s worth it compared to nothing.

If you don’t pay the fines, the collections agency will file a report with credit agencies.

Unpaid Parking Tickets

Some towns are doing the same thing with parking tickets. It’s not their best option, but pennies on the dollar is better than nothing on the dollar. And while it makes less sense when you think of individual tickets, when you consider how many tickets even a small city issues in a year, it makes sense to turn them over to someone to get something back.

Again, if it’s been turned over to a collection agency and you don’t pay, it’ll get reported.

Unpaid Utilities, Cable, & Monthly Bills

Right now, many cable companies, utilities, credit cards, etc, don’t report late payments and delinquencies to credit agencies. However, it’s happening in some states and if it works there, the companies may look into implementing it elsewhere. For large companies with long lists of delinquencies, especially when times are tight, it’s worthwhile.

On the bright side, if it becomes standard practice, it may be a way for people who’ve used little credit but have paid their monthly bills on time for years to establish a good credit history. In fact, it may offer an alternative to opening a credit account altogether.

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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Basics of Federal Income Tax – Textbook Personal Finance

Mrs. Micah — Fri, 12 Mar 2010 11:00:38 +0000

In the last month and a half, we were looking at the very basics of personal finance and money management. Now we’ve moved on chapter 3 and a very timely topic—taxes. There are many types of taxes: taxes on property, taxes on purchases, taxes on wealth, and taxes on earnings. Today we’re going to look at the last kind of taxes, specifically the basics of federal income taxation.

Once again, let me state that I’m working through a textbook and offering information about taxes but not professional tax advice or information.

Step 1. Determining Adjusted Gross Income

Determining your adjusted gross income (AGI) is the first step to determining your, the amount of income on which income tax is computed. Your AGI is your gross income after you’ve madde certain adjustments and exclusions. Most, but not all, income is taxable. Your gross (total) income is formed by any of these three components:

Earned income — wages, salary, commissions, fees, tips, and/or bonuses.
Investment income/portfolio income — dividends, interest, etc, from investments.
Passive income — similar to investment income but comes from things in which you no longer actively participate.

There are other types of income which are subject to federal income tax, including alimony, lottery winnings, and prizes (game shows to blog contests). Under certain circumstances, you’re allowed to exclude amounts from your gross income. The first $80,000 earned while living and working in another country is excluded or tax-exempt income. This is different from tax-deferred income, which will be taxed at a later date (like earnings on regular IRAs).

Adjustments to the income include contributions to certain retirement plans (traditional IRA, Keogh), penalties for early withdrawal of savings, and alimony. This is not the time to take out deductions. You’ll deduct once you’ve calculated your AGI.

Step 2. Computing Taxable Income

Your taxable income is your AGI minus all tax deductions for which you’re eligible. I’ve already written a great deal about tax deductions, so I’ll move quickly past that and refer you to the article instead.

Be sure to keep records of any deductions you take, for at least three years. Ideally, you should keep them for seven, along with the returns.

The book notes that exemptions are deductions from gross income for yourself, your spouse, and qualified dependents. If you’re providing more than half of a dependent’s support and the dependent resides in your home for at least half of the year or is a certain kind of relative (child or stepchild, foster child, sibling or step-sibling, or descendants of any of these, such as your grandchild), you may be able to claim an exemption for them on your taxes. For tax years 2009 and 2010, the exemption is $3,650 per person.

The rules on proving that you provide more than half of a child’s support have changed in the last few years (since the textbook was written), but if the child (up to 19 or up to 24 if a full-time student) provides more than half of his or her own support then you cannot claim them as a dependent.

Step 3. Calculating Taxes Owed

The US tax system uses what are referred to as marginal tax rates (most of the time). These rates “are used to calculate tax on the last (and next) dollar of taxable income.” Not quite clear? Here’s how to think of it. If you’re in the 35% tax bracket, you don’t actually pay taxes on 35% of your income. The example below uses married, filing jointly tax rates.

Everyone pays 10% in taxes on the income between $0 and $16,700. If you made more than $16,700, then on the money between between $16,700 and $67,900 you’ll pay 15% in taxes.

So suppose that Micah and I have an AGI that comes to a nice, even $40,000 (because it makes math prettier). We would pay 10% of the first $16,700, or $1,670. Then we would subtract $16,700 from $40,000 and calculate 15% of that (because we already calculated taxes on the first $16,700). $40,000 – $16,700 = $23,300 and 15% of that is $3,495. $3,495 + $1,670 is $5,165, our total tax bill. That’s $900 less owed in taxes than if we paid 15% of our AGI as a flat tax.

In the previous section, we took off tax deductions. After calculating your taxes owed on your AGI, you get to apply tax credits. Tax credits are subtracted directly from the amount of tax you owe. Essentially, the government is saying “we’re going to credit this to your account like you already paid us.”

We get a tax credit for part of the tuition we pay for Micah’s continued enrollment as he teaches and finishes his dissertation. It’s my favorite part of doing taxes.

Step 4. Making Tax Payments

Even though we calculate and turn in taxes once a year, we actually pay taxes throughout the year. This is called withholding and it’s a pay-as-you-go system which keeps people from having to come up with thousands of dollars once a year. So even if you calculate that you owe $6,000 in taxes, you may have paid it all up front through withholding or may even receive a refund.

The W-4 you fill out when starting a job tells your employer how much you want withheld each month. Your employer will base it on your salary and filing status, but you can also have additional amounts withheld. Not having enough withheld can cause you to owe penalties.

If you’re self-employed or make a good deal of money from someone other than an employer, you may need to make estimated payments in order not to owe penalties at the end of the year and not to have to come up with all the money at once. Estimated payments are made at four points through a year, April 15, June 15, September 15, and January 15 (for the previous tax year).

Fortunately, if you under-withhold, you may fall under safe harbor, meaning you won’t get penalized, at least the first year. You’re given a chance to learn & adjust your withholding/make estimated payments better the next year.

Step 5. Watch the Deadlines

In most cases, you’re required to file your taxes on or by April 15. You can file an extension in order to get your documents in up to four months late, but you must still file an estimated payment by April 15th.

If you pay late or have too little withheld, the penalty you’re most likely to receive is based on interest since the time it was owed. Fortunately, if the IRS neglects to refund you the proper amount (or you don’t file right) and you claim a refund late, the IRS will pay you interest on the money.

Understanding vs. Doing Your Taxes

I was shocked to realize that for at least 6 years, I did my taxes by hand with a pen. Sometimes I would have to reprint the forms and try again because I’d made a mistake. I love the simplicity and ease of entering it all into a program, not having to find the right table for my taxes owed, not having to worry about lines, etc. When I was in my teens, it was easy. But now there’s a lot more going on.

Even so, I found this section immensely helpful the first time I went through the book. It helped me understand some of the whys behind taxes and how things actually work, even though I knew how to go through the mechanics. I think it’s very important to know, even if you’re using tax software.

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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Working While a Student – Try to Get Ahead or Find a Job for Which You’re Overqualified?

Mrs. Micah — Wed, 10 Mar 2010 11:00:00 +0000

One of the responsibilities I have in my current position is training and supervising several student workers. The work they do is pretty easy for the intelligent ones (don’t get me started on some of the others), it’s definitely not rocket science and it’s better for people who can thrive doing tasks which don’t require full use of their mental powers. It’s the sort of job you can do while listening to music or podcasts or books on tape, which some do.

Most of my students are undergraduates, but there’s one who stands out above the others. He’s got an excellent work-ethic, he’s good at his job, he’s personable, and he’s vastly, vastly overqualified. When I saw his résumé, my first thought was “Why would he want to work for us? This guy could be earning more than I am!”

The answer is precisely that—because he’s overqualified. He’s in an intense graduate program. He needs part-time work which doesn’t tax him mentally or physically, something he doesn’t have to think about when he’s not at work.

Working “Menial” Jobs in College

I realized that I did the same thing in college, taking on a bathroom-cleaning job (mostly men’s rooms) because I found it therapeutic to get up from my computer every night and spend an hour and a half doing something else. Like the position I’m supervising now, this job gave visual evidence of progress and would leave one feeling satisfied about having made a concrete, if small, difference.

On Saturday, we had dinner with some friends, one of whom is going back to school and working at Starbucks. Sure, he could get a better job, but the hours allow him time for class and the job doesn’t carry over into after-hours. He was temporarily promoted to supervisor because he was so good at it, but he stepped down when he found that it was interfering with his primary goal—getting his degree and moving on.

Afterward, I realized that a whole set of Micah’s friends do the same thing by working in the circulation department of the library at the university where they also study and teach. That particular job allows for a little studying when there’s no one they need to assist at the deck. We have similar positions at my workplace, even door guards who do almost nothing but study during their shifts.

The Alternative: Starting Your Career or a Small Business in College

A number of my friends in college spent their Senior years kick-starting their post-college careers. The teachers and social workers did year-long practicums. The business majors, accounting majors, and some of the communications/writing majors found internships with local businesses. The engineers disappeared, but I’m pretty sure they were just building machines in the basement of their building.

Other college students focus on starting their own small business instead of pursuing outside work. It means they have more control over their hours and the scope/scale of their work. On the other hand, it also means they’re more heavily-involved, since they’re the boss, sales, and labor.

Since I didn’t have a car (and didn’t have a car payment!), there was no public transit, and there were no good jobs I could easily walk or bike to, I stayed on campus. And there were times I felt like a slacker for doing so. On the other hand, I felt lucky compared to my student-teaching housemate who tried to juggle teaching English classes in an underfunded, low-scoring school with finishing her senior projects and other senior year classes. Her work consumed all her free time and took away from her studies (though it was necessary for licensing, so it’s a good thing she did it).

But I think that both routes have their merits if you do them right. Working a less-challenging job won’t look as good on your resume, but it allows you to focus on what you’re in school for—learning. On the other hand, real-life work experience in your field may look better on your résumé and should provide you with references and contacts you can use later.

I actually did both in college, since I worked in the library for three semesters before I switched to my more mindless job. It did count toward library experience and even helped me land the job I have now, since I was working in the same department and had an idea of what the work entails.

For other people’s musings on college this week, check out the pair of articles from the Studenomist and Brian Scheur of My Next Buck on whether parents shouldn’t pay for college or whether parents should pay for part of their kids’ college educations.

Did you attend college and work at the same time? What kind of job(s)? How do you think it paid off in the long run?

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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Putting Together Your Tools to Achieve Financial Goals – Textbook Personal Finance

Mrs. Micah — Fri, 05 Mar 2010 11:00:15 +0000

This week, the post is over at Being Frugal, it’s on putting together the tools we’ve been building to achieve your financial goals. The post wraps up chapter 2, covering money management and taking the first steps on getting our finances together.

Next week we’ll start on chapter 3, taxes. It’s a coincidence but an excellent one given the time of year.

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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TurboTax Home & Business Review

Mrs. Micah — Wed, 03 Mar 2010 11:00:17 +0000

I filed my 2009 taxes on Sunday using a review copy of TurboTax Home & Business Online, which allows me to file Schedule C—a necessity for almost all freelancers and sole proprietors.

Until this year, I’d been using the comparable TaxCut (now H&R Block at Home) product, which I won in a giveaway for my 2007 taxes and bought in 2008 since I was already used to the interface. This was also my first time using an online tax filing product instead of a program installed on my computer.

Who is TurboTax Home & Business Online For?

TurboTax Home & Business is for sole-proprietors, consultants (including freelancers), 1099 contractors, and single-owner LLCs. It’s not just for your small business taxes, you can enter your and your spouse’s W-2s, if you have any, and do regular taxes using it as well. I’m going to be writing about the Online version, not all the things I mention may be included in the software.

The Online version is simply an easier way of using the program and done in a browser. The major advantage is that it doesn’t require installing software on your computer. Since I don’t like installing extra software on my computer each year and having to uninstall if afterward, I liked the idea.

The other big advantage is that you can try any of the TurboTax Online products before you buy. You pay at the end, right before you file. To save information between sessions (or just to make sure you don’t lose it if your computer/browser crashes) be sure to create a free account.

TurboTax Home & Business also includes the features of TurboTax Premier for people with investment and rental property income.

Doing Your Freelance/Small Business Taxes

Using some of the screenshots I took, let me walk you through parts of the business income section. I didn’t take a shot of each page and I did black out some information, of course. You can click on the images to see larger versions with more detail.

TurboTax Home & Business doesn’t assume that you have just one small business or consulting project. If you have a few businesses in a few different areas that you want to keep separate—blogging, web consulting, etc, you can set up a profile for each one:

For each business, you set up a profile (including the IRS business activity code), import information from any record keeping software, add income, expenses, and misc:

In the income section, there are places for any 1099 forms you received as well as general income (income not in a 1099), other types of income, and income you refunded/rebated or otherwise gave back:

Because I had my payment data in order, I found the whole process quite easy and straightforward. There are two options in this section—one is the TurboTax guided tour, the other is an overview screen which allows you to navigate on your own. I decided to use the guided tour, but when I went back over it after finishing I navigated using the other method.

The guided tour was a little slow, but I wanted to be sure that I didn’t miss anything.

Things I Liked About TurboTax Home & Business Online

Import Your W-2

An exciting feature of TurboTax that I wasn’t able to use (so it’s more potentially exciting than actually exciting) was a new feature which allows you to import your W-2 form. Intuit partners with a number of companies so that you can use your name & SSN & place of employment to access your W-2 right there. But my employer doesn’t participate, so I put it in manually.

If I had been able to import it, I still would have double-checked all the numbers.

Flag Areas to Revisit

One feature I really liked was the ability to flag specific “pages” inside the return. In the past, I’ve found tax software programs hard to navigate. It’s not like a normal website. The flagging feature allows you to bookmark sections so that you can easily return later. It’s very helpful when you don’t have all the information in a section at your fingertips right away.

Live Community Sidebar

A feature I didn’t use but thought looked interesting was the Live Community Sidebar. The sidebar allows you to ask tax questions which will be answered by a whole community of users. The (answered) questions displayed in the sidebar are contextual and popular for whatever page you’re currently on.

I asked the TurboTax team just who was answering these questions. I wouldn’t want to get tax advice from just anyone. The forum is made up of regular users as well as TurboTax employees and techs (if you have a technical issues) as well as tax experts, superusers (often ex-CPAs), and moderators. It’s their goal to delete or correct misinformation and to answer questions properly. It’s still not the same as hiring your own tax professional, but it’s probably as good as any tax research you can do on the internet.

The PDF Copy

I have my last two years of taxes saved in lovely PDF formats produced by TaxCut. But those were nothing like the beautiful PDF I downloaded after filing with TurboTax. I’m not sure if TaxCut has upgraded now, but the TurboTax document was awesome. It had a navigation section to let you skip between forms, it wasn’t just a digital printout, it was very easy to jump around in. Since I’d been using the PDF of last year’s taxes for a few things, I saw a huge contrast.

Things I’d Improve About TurboTax Home & Business Online

The flagging system is great. Still, I would have liked a table of contents that shows where you are and allows you to navigate, at least in the section you’re in right now. It would have augmented the guided tour nicely, especially if I wanted to skip over a few pages that I knew were irrelevant.

But other than the pace, I found it very easy to use and I found it very thorough. I’d say that my experience was on-par with the TaxCut software. I actually enjoyed doing my taxes more this year, but I think that was mostly due to my own preparedness. My documents were in order, my records were arranged, and I even had money set aside to pay the extra that I owed.

Disclaimer: As I said at the beginning of the article, this was a review copy of TurboTax, meaning that I did not have to pay for it—though it was not contingent on a positive review. The links to TurboTax are affiliate links, meaning that I will be compensated if you choose to buy TurboTax Home & Business through them. Regular readers know that I very rarely do product reviews because I’m not really a review blog, but this one was useful for me and I hope will be useful for you as well.

Content © Mrs. Micah 2007 – 2010. This content may only be reproduced in excerpts by legitimate bloggers.

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How to Document Your Possessions for Insurance

Mrs. Micah — Mon, 01 Mar 2010 11:00:07 +0000

Whether you rent or own your dwelling, having insurance for your dwelling is very important. Our lease actually requires us to get it. Since we’re in a one-bedroom apartment and almost none of our stuff is new (or if it is, it’s well-used), we didn’t insure it for a huge sum, but do have enough insurance to replace it all should something happen. It costs just under $100/year and it’s worth every penny for peace of mind.

About a year after we got insurance, when I was renewing the policy, I suddenly realized that we didn’t have any documentation of our possessions, were we to have a fire or other catastrophe. While the insurance company might believe we had 2 couches, a bed, a dining room table, etc, they might not be willing to take it on faith that I have a lovely violin or the number of computers we seem to have acquired (though some are so old & feeble that they’re not worth replacing).

So I grabbed our little digital camera and made a sweep of the place, documenting. It’s been on my mind again recently, after I wrote about creating a personal balance sheet in my textbook personal finance series. Here are some tips for documenting your possessions for insurance.

Use a digital camera. If you don’t have one, borrow a friend’s or buy a disposable digital camera. Having the pictures in digital format makes them much more useful.
Photograph everything. Photograph the most important items carefully, bu also take pictures of rooms so that you can point out that you lost two sets of hand weights, a couple quilting hoops, several wicker baskets of fabric, etc. If you end up having to use the photographs, having broader pictures will help you figure out everything you need to replace. Also pull open kitchen drawers to get an idea of what’s inside.
Store remotely. Don’t just keep everything on your local computer or in your camera. You can use everything from online storage like dropbox to gmail to a friend’s computer to web albums to store pictures. But wherever you do store them, make it private. You don’t want to end up on someone’s shopping list!
Document on “paper” too. Santa’s not the only one who makes a list and checks it twice. Having a list will help you recall specifics down the road. It
Don’t sweat tidiness. Don’t put it off just because things aren’t as neat as you’d like. Better to do an initial documentation, find time to clean later, and then re-document if you want to. The only thing I’d avoid taking pictures of are any big fire hazards (and I’d get those fixed so you don’t have to use the insurance!).

Insurance is good, but without documentation your bases aren’t fully-covered.

Do you have homeowner or renter’s insurance? Have you documented it yet?

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Learn Effective Budgeting – Textbook Personal Finance

Mrs. Micah — Fri, 26 Feb 2010 11:00:09 +0000

In the last two sections, we looked at discovering your net worth and creating a cash flow statement. Both of these steps help you assess your financial situation—the big picture and the day-to-day. From figuring out where you are now, the textbook moves into concrete plans for the future: budgeting.

I’ve written about budgeting before. I’ve talked about how it’s different on an irregular income and how I findnot budgeting more frightening. But because it’s the next step in the book and the next logical step in what we’ve been reading. Plus, I’ll be working from the book’s approach, which is a little different from mine.

The textbook lays out seven main steps to building and keeping a budget.

Step 1. Set Financial Goals

I like that the book starts here. Rather than thinking of your budget as a tool to rein in your spending the book encourages you to think of it as a way to achieve your financial (and other) goals. Sure, it covers things you’d have to pay for anyway, like rent, but what you spend and where you spend it has an effect on how you live now and how you’ll live in the future. Your budget is what gets you to the future you want.

Step 2. Estimate Income

If you have your cash flow statement on hand, it should be easy to estimate your monthly income. Remember that this may change at times if you’re paid biweekly (in which case you should have several months with three pay periods instead of two).

If you’re a freelance or someone with a highly irregular income, start with a low estimate based on the least you’ve earned in a month in the last six months.

Step 3. Budget an Emergency Fund and Savings

I’d forgotten that the book prioritized the emergency fund and savings, paying yourself first. It suggests having three to six months of living expenses on hand. Set a date when you want to have finished saving your emergency fund as well as a goal for the fund. Then divide the amount by the number of months to go until you want to have that saved. Add it to your budget.

If you already have an emergency fund, take this opportunity to budget for other financial goals.

Why put this first? Otherwise it may get lost in the other expenses and despite having a budget you may end up living paycheck to paycheck.

Step 4. Budget Fixed Expenses

Again, if you have your cash flow statement, it’ll be easy to write down your fixed expenses. Otherwise, look over your last few months of bank statements and get the numbers for things like rent/mortgage, any regular loan repayments, insurance payments, etc. You may want to split an annual insurance payment into monthly portions and put them aside for the end of the year.

Step 5. Budget Variable Expenses

Now that you’ve budgeted for your future and set down your fixed expenses, the rest of your income goes into variable expenses. It’s harder to budget for variable expenses at first, but each month you learn more and more about your spending habits.

Step 6. Record Spending Amounts

A budget doesn’t do you much good unless you record your income and expenses. The free 2010 Budget Spreadsheet I created has a section for this up front. At the end of the month, find out what kind of variance you had. If you had a surplus, that’s great—put it toward a goal. If you had a deficit, look for places where you can cut back next month. It may be necessary to revise your spending or, if your income has dropped, to revise your financial goals (or find more income).

Step 7. Review Spending and Saving Patterns

You’ll get the most out of a budget if you review not just at the end of every month but if you look over a few months of budgeting every quarter of so. Are you still on progress? Areas where you’re consistently falling short? Or are you doing just what you expected to?

A good spending plan is well-planned (not just thrown together), realistic (based on your current income and needs), flexible (we budget a bit to a car fund each month just in case), and clearly-communicated to all spenders in the household.

I used this chapter to create my first real budget back in college. If you want a budget spreadsheet that grew out of that original budget, check out my free, downloadable 2010 Budget Spreadsheet.

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Plutus Award Nomination and Best Posts

Mrs. Micah — Wed, 24 Feb 2010 13:02:16 +0000

On Monday I got a series of congratulatory e-mails and tweets concerning my nomination for a Plutus Award. While I was aware that Flexo had created the Plutus Awards to spotlight the best personal finance blogs in various categories, I was unaware that Finance for a Freelance Life had been nominated and was one of the five finalists in the running for Best Personal Finance Blog for Generation Y or X.

I’m honored and excited, as one of my external goals for the blog is to help Gen Yers who are dealing with a unique set of challengers and goals. If you would like to vote for Finance for a Freelance Life, you can go here to cast your vote. If you came from the Plutus Awards & are trying to make up your mind before voting, here are blog highlights from the last 2.5 years:

Getting Out of Debt and Getting a Handle on Your Finances

I started this blog just a month after getting married in order to get a handle on our new combined finances and because my husband carried over $100k in student loans (you can read more on my About page). One of the primary focuses of the blog remains getting a handle on finances and getting out of debt—a problem faced by many young people leaving college or graduate school as well as GenXers looking towards retirement.

While we’re not staunch followers of Dave Ramsey, I’ve found his debt snowball method quite useful. We’ve also learned how to “snowflake” extra payments to increase the speed at which we pay off debt.

Since Micah is currently employed as a teacher and only paid during the school year, we’ve had to tackle the challenge of paying off debt with a teacher in the family. And for those who are pursuing similarly low-paying jobs with high student loans, I’ve written about an income-based student loan repayment program (though we’re not using it ourselves).

Financial and Other Resources

I enjoy creating resources, whether compiling information and creating how-tos or creating simple spreadsheets and documents.

If you’re looking for information about taxes, check out my Mammoth list of 2009 tax credits and deductions. Each section links to the appropriate details form the IRS so you can be sure of your information.

Would your spouse/partner or do your family members know how to handle your finances if something happened to you? I’ve created a resource sheet to help you save and store critical financial information for your family. Over two thousand people have already downloaded the spreadsheet.

Another set of free resources I created are budgeting, goals, and entrepreneurial sheets for 2010. Over 5000 people downloaded my 2009 budgeting worksheet—a simple and easy-to-expand tool. This year I added additional spreadsheets for financial and other goals and updated my sheets for freelancer and entrepreneurs.

Next year, I plan to go to grad school (but pay my own way rather than take out student loans). In November, I took the GREs and scored a 1580. After taking them, I wrote a series of posts on how to study for the GRE Writing, GRE Quantitative (Math), and GRE Verbal.

Budgeting, Working and Living Cheaply

If you’ve never budgeted before, check out my month-long series — “Where’s My Money Going Month?”, in which I follow-my money for a month and then write about creating a budget from those numbers. And if you’re budgeting on an irregular income of any kind, check out the companion post to debt-repayment with a teacher in the family: budgeting with a teacher in the family.

For young people, finding work in a recession isn’t always easy. I wrote about my experience using a temporary agency and how a placement agency should work. I also asked “what kind of work is beneath you?”, a question more and more people are facing now. And I calculated the real cost and real earnings of a part-time job I held in 2008.

The best way to make your money go farther is to continue living like a grad student. I shared my thoughts on how we live cheaply and why we’ll continue to do so while paying off the loans.

Freelancer Posts and Resources

Though the blog was nominated for the GenY finance side of its focus, not the freelance side, it is Finance for a Freelance Life. Here are a number of posts I’ve written for freelancer finances and other challenges they face:

If you’re considering going freelance yourself, check out these posts on preparing financially for a career change and doing a financial dry run before freelancing.

I created a simple and free spreadsheet to help freelancers keep track of potential deductions. By filling this in throughout the year, you can be prepared when doing your taxes (specifically for bloggers).

Other challenges of freelancing I’ve addressed include setting a fair price for your work, pacing yourself to avoid overworking and emotional strain, handling clients who don’t pay (ugh), and setting your own schedule.

This blog is over 2.5 years old and I’ve written a lot in that time. Not all of it’s constructive, not all of it’s still useful, but I hope that everything I’ve presented in this post can still be used by its target audience. Finally, I wanted to include my favorite post, which is not related to finance or freelance in any way but is the post I think may offer the most value (and is certainly the most valuable to me) on this blog: why I’m glad I didn’t kill myself.

There are four other great blogs in the running for an award: Budgets Are Sexy, Well-Heeled, Bargaineering (a.k.a. Blueprint for Financial Prosperity), and GenXFinance. I know all of them—two I’ve even met in person and the other two I’d be happy to meet sometimes—and I think that each of them deserves the award for different reasons. I won’t mind if you decide that one of them does a better job for GenX &/or Y than I do, they’re excellent blogs.

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