Making Work Pay credit-- question from a reader

I recently received this question from a concerned reader:

"My employer will being withholding less income taxes beginning with my 3/16/09 paycheck because of the American Recovery and Reinvestment Act. A colleague is saying that although withholdings are changing, the tax tables are not and we will still have to pay at tax time. Is that true?"

I definitely understand the confusion. As if the tax code is not confusing enough as it is... Here is what my research uncovered:

• The particular part of the ARRA that is affecting your paychecks is called the Making Work Pay credit. This credit gives each working individual (and even non-working individuals) a $400 reprieve ($800 married filing jointly) from federal taxes.
• This went into effect 3/1/09, so look for it on your first pay check that includes days worked in March.
• Employers have the ability to give this credit to you throughout the year by adjusting your withholdings. This has (can have) the effect of raising your paycheck amount.
• You do not have to update your W-4 for this change to happen.
• If you do not have an employer (work for yourself, etc), you can claim the credit on your tax return.
• If your employer does adjust your withholdings, you must *still* report (not claim) the credit on your 2009 tax return.
• The tax tables have been adjusted for this.

I like this credit-through-the-year plan versus an end-of-year credit. It means you get to keep and use your money now, rather than lending it interest-free to the government to be returned next April. Just be sure to use that extra little bit to generate interest-- either through paying off debt, savings, or investing-- otherwise it doesn't matter if you lend money to the gov. interest free!

You can find plenty of information by Googling "Making Work Pay credit." For more info on who is eligible, what this could mean to you, and the adjusted tax table, visit this IRS link.

I found http://www.recovery.gov/ to be pretty much useless on this topic, but it does have a lot of general information about the ARRA.

I am definitely not a tax expert. If you find errors in this summary, please post a comment and let me know! That being said, I hope this clears things up for some of you who are wondering what is going on.

How to prepare (financially) for a depression

Yes, yesterday was an ominous post. No one wants to think about-- let alone believe-- that a depression is upon us. I hope I'm wrong.

In case I'm not (and because it's a good plan anyway) I am going to detail some ways we can prepare for a potential depression. And no, I'm not going to tell you to learn how to cook a squirrel. That is a survival skill you can look up if it's necessary.

1. Start an emergency fund. This should be 3-8 months of expenses depending on your job. If you work in a less-than-necessary field, be thinking 8 months. If you are a nurse, ER doctor, certain kinds of teachers, etc. and you don't know of any impending layoffs or downsizing, you can think 3-6 months. After you complete the rest of this list, build it up more. You will want cash on hand.
2. Get out of debt. Get rid of your credit cards, car loans, car leases (please tell me you don't have a lease!), student loans... everything! You want what little money you have to be able to go where ever *you* want it to. You can do this with only a 'mini' emergency fund if your debt is small enough to be wiped out fairly quickly. Just don't forget to go back and finish it.
3. Pay off your house. (a.k.a. get out of debt). I don't know why so many people do not consider their house payment to be debt. It is! The bank owns your house! I know there is a huge school of people out there who don't believe in paying off your mortgage early, but if you knew that no one in your family would have a job for the next 18 months, would you wish you had your house paid for? I thought so.
4. Cut costs. Start couponing, reducing (or eliminating) cable, review your insurances to be sure you aren't paying too much, drive less to save on gas, don't eat out or eat out less. Take that money and insert it into paying off debt or saving in cash.
5. Take care of what you have. This especially goes for your car and house. Do not skip the oil change or the leaky roof. If all you have is the shirt on your back, your car, and your house, aren't you glad the car runs and your house actually keeps you dry?
6. Buy for the long haul. When shopping for clothes, don't buy something that is going out of style tomorrow-- or even next year. When buying appliances, skip the 'automatic pickle slicer attachment' or whatever other unnecessary doodad, but don't waste your money on something that will not last, either.
7. "Stockpile." I do not mean go crazy and have toilet paper stacked to the ceiling in every room of the house. I mean give some thought to overstocking your pantry and toiletries. Pay attention to what is on sale and what you could pick up for free or next to free. Walgreens will pay me to buy toothpaste this week. Even though I am not out of toothpaste (actually just bought toothpaste), I will likely go pick some up. If you go out and spend $200 on toothbrushes and industrial-sized bags of rice you are missing the point.

Things NOT to do:

1. Cash out all of your retirement. Unless that is all of the money you have in the world and absolutely cannot find a job, leave that where it is for now.
2. Buy so much beans that you have a rat infestation. If stockpiling is 'your thing' and you really want to go for it, do. But if you are going to invest that much time and effort, do your research. Be sure you would want to do that even if you did not think the economy was bad. Also be sure you know how to properly store things and how long the shelf-life is. It would be awful to avoid starving only to poison your whole family with tainted peaches.
3. Panic. This list is to help you avoid panicking. Use your head, be smart, prepare as best you can. We're all in this together, so don't get some idea that you're going to starve alone in your living room floor. People will find a way-- it's just that the people who prepare earlier will have a much easier time of it.

Really, preparing is pretty simple. If we all prepare now, maybe it won't be so bad.

Feel free to add to this list by posting a comment.

The rumblings of a depression

The state of my own personal recession has distracted me from the original intent of this blog-- which was more of a macro take on personal wealth-building with micro examples from my life. Yet another example of how easily the urgent can take the place of the important. It is time to return to the important.


A depression is coming.

Yes, I said it. Some will now forever label me as a kook. I don't know if it will be soon, but I have a strong impression it will be in my lifetime. While many of you are bemoaning the mess your kids and grandkids will never be able to sustain, I despondently acknowledge that I am a part of that group. Being 21 right now is no fun.

Why am I so confident that a depression is coming? Because Americans no longer have any common sense.

Imagine a 64-year-old cashing out his retirement in small bills, taking it (in a large bag) to the top of the tallest building in his city, and dumping it all out. What charity! All that money going to help those who really need it! There are homeless people down there! There are people down there who will pick it up and spend it! Hurrah!

This seems to be the government's idea of stimulating the economy; and we trample each other on the streets trying to catch a couple of $1 bills and believe that this is the answer to our prayers and we could never survive without it. Meanwhile, our hero on the roof now has no job, no money, and 25 dependent grandkids to feed.

Our American hero of a grandfather is now at the mercy of anyone willing to give him money and at risk for having to feed his family dog food just to keep them alive. I'll leave how this could apply on a national level to your imagination.

The fault in this situation lies everywhere. We can trace it all the way back to eliminating the gold standard and establishing a fiat economic system. Our economy by definition is every bit as much of a 'bubble' as the 'dot com bubble' or the 'housing bubble.' We can blame it on our own exorbitant consumer debt, the Clinton administration's forcing financial institutions to give loans to people who couldn't afford it, the Bush administration's Iraq war. The fact is that there is plenty of fault to go around.

The reality is that contributing factors are now being added exponentially so that they are getting bigger and coming faster. It's like an avalanche; or a rapidly growing snowball of impending economic doom. "10 trillion dollars in debt? Let's add another trillion or two! That will fix it" ...And the snowball approaches faster and faster. It has already eaten some outlying villages in the form of massive layoffs and unemployment.

I do not claim to be a prophet or a macro-economic expert. I also do not want to get eaten by a giant snowball of doom. But my hope is waning. Our new President and Congress do not seem to have the sense we all need them to have. God bless them, I don't have a personal problem with the President or anyone else, but I can feel my confidence in their ability to bring us out of this mess slipping away.

Perhaps the President will bring us out, cut the deficit, bring us back into a surplus, then actually use the surplus to get us out of this hole. Adding a trillion dollars to the red column within the first 30 days of office is not the strategy I would use, but hey. As for me, I'm working on getting my own house in order.

Taking Care of Business

Wow! This week has been exhausting! My personal goal of posting once a day has (obviously) taken a back burner the past five days. Made a little money and focused on the more important things in life.

Wednesday-Friday I substituted again for a friend in my discipline. It was a blast in a lot of ways-- much easier than just walking into a classroom without really knowing what's being covered-- but it was also totally exhausting. I pretty much came home, collapsed into a puddle, and went to bed early. Made about $240 gross and will get paid in late march.

Wednesday and Thursday we went to donate plasma. Didn't get to either day. Long story. Unfortunately my husband will never get to donate. I probably could if I'm not dead next time I go (long story-- I'm fairly sure the blood pressure machine was broken), and if I can swallow my indignation and frustration well enough to sit through that again.

Friday evening through this afternoon my husband and I attended a marriage conference. We enjoyed it very much and loved getting to spend the time focusing on each other and our relationship. I know I would have gotten more out of it if I had a little bit more sleep the past few days, but it was important to have that time anyway.

Things can get ugly out there, ladies and gentlemen. There were over 400 people there who attended for free because they gave it to anyone who had lost their job in the last 6 months. Money is the number one cause of fights in marriage-- I'm sure you've all heard that statistic. If you can't support and cling to your mate in these times, the prognosis isn't good, folks. Take care of your relationship with each other before anything else right now.

If you've lost one or both jobs, a lay-off is looming, or if you're just worried about what could happen, talk about it. Hug, cry together, reassure each other that you still love each other and you're in it for the long haul. Then make a plan. Cut everything that's not vital to existence. Go donate plasma together. Make sure your man knows that you are proud of him for delivering pizzas so that you can have a roof over your head. A man who will swallow his pride to provide for his family is a hero, not a failure. If you are that man, I am proud of you. There isn't a better gift you could give to your wife than to provide for her.

Where we live it's pretty warm, so we haven't had the heat on for weeks. My fingers are pretty cold right now, but it's not miserable with a blanket and a warm laptop in my lap. My first student for my private lessons comes tomorrow. I can donate plasma and take sub jobs (as much as I'd like to avoid that some days). My husband is going to do his best to have a job by the end of the week, even if it's delivering pizzas for Domino's. We bought a couple of papers again tonight so that I can continue clipping coupons for next month's groceries. We're taking care of business so that we don't have to live in fear, shame or guilt. We're in this together-- for better or worse, richer or poorer.

Coming up-- our budget may be changing. A revised plan until we get our feet under us. Hopefully we'll get to eat more than peanut butter and ramen noodles, but we'll see what we can do.

More thoughts on the trillion-dollar package

Came across this video on the Dual Income No Kids blog (dinkfinance.com). The video gives details about just what 'one trillion' is. Interesting points such as 1 trillion one dollar bills stacked would reach 1/3 of the way to the moon, and if you started spending 1 million dollars a day from the day Jesus was born to today, you *still* would not have spent one trillion dollars.



And, as an update to the previous post, I said that the national debt was over 1 trillion dollars. That's true. It's over 10 trillion dollars. Which, I guess, would reach the moon three times and more.

Economic stimulus or just spending money?

I just read breaking news from the AP about an economic stimulus package passage. Here's a link.

click to read

Some thoughts on the article...

I am pretty good at reading political-ese. I spent a huge majority of my time in high school reading senate bills, contacting senators, helping campaigns, talking to law makers at the state capital building, etc. (Oh, the things you can do when you're home schooled and don't have to waste 8 hours a day sitting through classes you could pass without taking...) However, I guess being so out of the loop during college has cost me, because the article doesn't make much sense to me.

I'm somewhat surprised by the Republicans' nay-saying, for the most part. It seems to me that a large number of politicians sway in the wind. Perhaps the complete and total failure of the first two bail-outs has sobered up some of the former conservatives. Or, perhaps they are simply paying attention to what's in the bill.

Which brings me to another thought-- this looks suspiciously like a spending bill rather than a stimulus package (although the difference is quite debatable at this point). Reading to the bottom of the article, I find that:

"The Senate proposed $450 million for NASA for exploration, for example, $50 million less than the House. It also eliminated the House's call for money to combat a potential flu pandemic."

DO WHAT??? What the crap does NASA have to do with it??? Pardon my French, but half a billion dollars on space exploration is not the same as public works projects!!! What flu pandemic? What if there isn't a flu pandemic? Can't we spend money on that when it happens, not before???

I'm very passionate about this, people! The government owns huge parts of our major banks, for crying out loud! We have well over a trillion dollars in national debt, yet we want to throw money at imaginary disease outbreaks and space exploration??? What if our national creditors do what some of the banks did to citizens and call our loans early? Think of post WWI Germany (this is not Nazi Germany, although it may have led to it)... Look it up, if you have to. Find a very general description
here.

I think I'm going to actually read these bills. I haven't because some of these things are multiple hundreds of pages long with a lot of politicalese. I urge you to try to read these, too. I have a feeling you will say to yourself, "I don't know a lot about this stuff, but what does NASA have to do with helping laid-off Starbucks workers?" You can find the most current version of the bill by visiting the office of the clerk of the House of Representatives. Read it from the bottom up and you can see everything that happened in the House that day. Thomas is another great resource for looking up legislation, but you have to be careful to figure out which one is the most recently amended.

After that, Republican and Democrat alike, call your representatives and ask them to demand that the extra junk be eliminated and if it's not to vote 'no.' I know Democrats probably feel like they really need to support the president and that if we don't pass this thing by Friday a million babies are going to starve to death by Tuesday morning, or some similar tragedy. That is simply not true.

The more likely scenario is that we will pass bail-out after stimulus package after bail-out after spending plan, the value of our money will (eventually) plummet and we will be standing in line for bread because even those who have jobs can't feed their families. How much did the first stimulus help? Answer: none. The Obama administration's own projections say that the recession will continue for another five years or so and only be slightly prolonged if no action is taken. If that's the case, ask yourself why it's so urgent that we give NASA $500 million dollars before Friday, or else.

Perhaps a public-works deal could be beneficial. I know that my friends and family just hit their jaws on their desks. I'm generally pretty conservative (read: very conservative), but I'm open to suggestions. This could get ugly, and I'm willing to read any legislation that has a precise plan with obvious economic benefits, a strategy for turning over the project to the private sector with a timeline, and a decent sunset. (A sunset is when the bill is set to expire unless law-makers renew the bill). If I can feel fairly confident the government won't be involved forever, I would consider supporting it.

I will not support legislation that involves throwing money at special interest groups-- I don't care which ones-- or the government buying huge assets (or any assets, really) in privately owned companies. Companies fail-- that's what capitalism is. You screw up your business plan and mismanage your money, you go out of business. If those banks had failed completely, people would lose money in the stock market and some people would lose their jobs. Another bank would have bought them (which, ironically, is what actually happened before we started giving them money). Even if not, people still have up to $100,000 each in FDIC insured money (which is now $250k).

After all that, please don't panic, people. Don't let yourself get bullied into making a poor decision because of some artificial deadline. Don't clamor for the passage of the PATRIOT act then get outraged because people get jailed without charges or bail. Call your representatives and insist that they take more time. Cut all but the essentials and bring it back to us after you have a plan, transparency, oversight, and only essentials. Not before.