smart financial decisions

July Financial Update

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Well, we started the month with way too many things hitting the credit card: 2 insurance policy renewals, a new insurance policy, air conditioning fix at a rental, and bathroom replacement at a rental. That eventually led to a $1500 charge for bat removal at another rental.

PERSONAL

My big news this month was handling my HOA’s annual meeting. We’ve been working so hard for the last year, and I tried really hard this year to increase communication between the Board and community. I think I did a good job because there wasn’t any contentious point of this meeting and there were very little questions. I received nice feedback on how I presented the budget and that I did a good job throughout the year. It was a welcomed win since there was a lot of heat in the previous couple of years.

The family’s big news is getting passports for a trip this Fall. The parents already have theirs, but we got the kids their pictures and submitted their application. So our credit card balance is higher than normal because we paid for flights and the cruise itself.

It took us until the last week of June to meet our deductible on our health insurance. It’s only $3,300, so that’s quite the impressive feat. I’d point out that my March surgery took until then to get processed correctly, but at least we eventually got there. I have very little faith that it’s all processed correctly though, so it’s on my to do list to verify that we’re not overpaying into that deductible, which they don’t make easy because they don’t show me prescription fills clearly.

We went on a trip for a long weekend to visit Mr. ODA’s aunt in WV. They have a vacation house there, so we didn’t pay for lodging. Unexpectedly, they provided all our meals. I bought them a gift card and some beer. So between that gift, gas, and the meals on either end of the trip, we spent about $200 for a trip, and it was one of the best vacations I’ve been on.

Two of the kids spent this past week at camps. One was 3 hours per day at a dance studio, and the other was 9.5 hours of all outdoor time for the week. He had a blast, and I’m kind of jealous that he got to play all those games and have a great week.

RENTALS

This month, I received an email from Rent App that a tenant was paying their rent. She didn’t give me a heads up, so I wanted to verify things with her. She said this app pays me in full, but it takes the first half of the payment from her account at the beginning of the month and then the second half of the payment in the middle of the month. They’ve lived with me for for 8 years, so I’m surprised she sought out this option instead of talking to me about a payment plan. The program was extremely sketchy and I didn’t feel good about a single step of it. I gave up the registration process at the point that it required untethered access to my phone, but I wish I would have followed my gut at the first personal information step, as if it wasn’t bad enough I had to give my bank account details for the transfer to happen. The payment eventually came through on the 10th, but I didn’t feel good about it.

Another tenant paid late with the late payment. And another tenant paid late with little to no communication and several follow up conversations. I can’t stand when I have to hunt down money. I’m willing to work with everyone who reaches out. She paid the first one with a (1/3), so clearly she knew the plan. And yet, on the 6th, I had to ask where the rest of the rent was. She said it would be done that day. A partial payment was made on the 7th. Then another partial payment on the 8th to finish it out.

We hired someone to clean out the gutters at two houses. Both houses are inundated with trees over the roof, so it’s something we need to stay on top of because they back up every 6 months. We could add gutter guards, but just didn’t see the point since we could do it. Now we don’t live there. He is also going to cut trees 10′ back from the roof on one of those houses.

And then the bats. One house had a bat show up last Monday. My property manager didn’t think much of it, so we didn’t do anything (I wasn’t even told about it at that point). Another bat showed up on Saturday. The tenant went for rabies shots and got boosters for her dogs. She then took a bat to get tested, which came back negative. She said she wasn’t comfortable staying there, so she stayed with a friend. We had traps set so bats could get out of the attic, but they couldn’t get back in. The pest people will go back next week to check on things.

We have two houses that will be vacant at the end of this month. We were supposed to have one at the end of June and one at the end of July, but the June one asked for an extension. I let them have it, but I’m not thrilled about my timing now. We won’t be able to truly get to work in there until mid-August, and it’s going to require a lot of work (not hard work, just time consuming). Then for the other one vacating at the end of the month, we don’t intend on renting it again. We’re going to let it sit over the winter and sell it in the spring.

NET WORTH

The way that I update our net worth each month involves overwriting the numbers from last year. So I can easily see that we’ve gained over half a million net worth since July 2024’s update. What’s nice about that is that it’s all appreciation, paying down mortgages, and the stock market with continued savings. We didn’t make any large financial moves that would have adjusted our net worth in one large move like buying a house. I had a conversation with someone about our net worth and goals recently. It would be nice to cross the $5 million threshold, but we’re not actively managing our funds in a way that will cause drastic swings outside of market movement. We crossed $4 million in March 2024.

We’re over $200k from last month’s update. Our credit cards are much higher than last month because of trip purchases and rental work that was unexpected, but needed. Here’s to the last month of summer.

Tax Returns

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Typically, I write a post around this time of year on how we handled submitting our taxes. This year, I’m going to focus on the return itself, and the concept that a large return is somehow “gaming” the system.

OUR TAX FILING

First, I’ll remind you of our process. I spend all year getting ready to do our taxes. This isn’t a last minute activity where I’m trying to find all the income and expenses and recreate data. I know more than one small business owner that constantly files for an extension because they’re not ready. Make it a routine all year to be organized. This way, once the year is over, you’re just verifying you have everything recorded, instead of compiling all paperwork and documentation for the first time. It’s less stress and you’re doing less work (because it’s still work to file the extension).

Most people have just their W2 income, maybe a little other income, and a standard deduction. However, if you have any more than that, you should make it a whole-year process. I have a spreadsheet that I keep for each rental property. I copy the template over each year for a new workbook, keeping the basics (rent income, routine utility costs, taxes, insurance, etc.) and deleting the extra maintenance costs that went into the houses (plumbing calls, HVAC repairs, etc.). As expenses occur through the year, I input them into the appropriate tab in the spreadsheet. At the end of the year, I verify I have all my receipts/invoices recorded.

Then Mr. ODA sits at his computer while I read off each house’s totals from my spreadsheets. This year, I think we hit a record in that it only took about 90 minutes to do our taxes! That’s probably the quickest we’ve done it since we’ve had all these houses. Actually, let me back track for one second there. I’ve spent all year preparing for tax season by inputting information as it happens. Then I spend about 2-3 hours reviewing all the data to ensure I haven’t erroneously recorded data, haven’t missed data, or haven’t omitted recording an expense or income. But the actual time that it took to go from spreadsheet into software and press file was 90 minutes.

“THE GOVERNMENT IS SAVING FOR ME”

A financial friend asked for “financial wins” recently on Instagram. Someone responded that they received a $5,000 tax return. He then said that he had several people comment that this isn’t a win, but he came to this person’s defense that some people need the government to do their savings for them. He said that, for some people, if they had an $100 each week of the year, they would have spent it frivolously.

I actually think that’s an excellent thought process. I see where he’s coming from there. Instead of someone thinking “let me set aside $100 this week to put towards debt,” it just becomes part of the pot of money that goes out with each pay check. That’s also easy to see as not worth putting towards a separate financial goal because it feels like not enough.

My frustration with the thought process of wanting a large return is that people think they’ve gamed the system and done something special to obtain (or earn) that amount, rather than realizing it was “their money” all along. You can project your tax burden for the year; it’s not a secret formula. Paycheck withholdings throughout the year simply allow you to work with your employer to gradually meet that tax burden as you earn your salary.

We project our tax burden each year. Sometimes Mr. ODA doesn’t listen to me on what our net for the rentals is going to be, and then we owe a lot come April, but that’s our own fault for not projecting with the right variables. For most people, the projection is a much simpler formula.

AIM FOR A $0 TAX RETURN

If you are someone who is going to put that $5,000 towards something productive, rather than frivolously spending it just as you would have all year, then that’s fine. However, I encourage a look at your opportunity costs.

Did you receive your tax return and go buy a 75″ tv? Was that a necessity? Did the money that went towards that tv have a better financial purpose?

Did you spend the whole year living paycheck to paycheck and worrying about the next bill to come in? Did you pay bills late because you needed funds from a future paycheck to cover the balance?

Did you spend the year carrying credit card debt, paying 26% interest on the balance, and then wait for your tax return to pay towards your balance? If you did, then maybe realize that the $5,000 you got in a lump sum could have saved you in interest costs had you just put $400 extra per month towards your credit card balance.

If you pay $200 per month (assuming a 26% interest rate):

If you pay $600 per month (that extra $100 per week that went into your taxes paid instead of into your pocket all year, causing a $5000 return):

You’ve paid off the balance in less than a year, and saved $1704 worth of interest payments. If you had paid $200 per month for a year and then used your tax return to pay off the balance, you’d have paid about $1,100 of interest, and then would be putting over $3800 of your tax return to pay it off. You also have the benefit of not having a bill hanging over your head at some point within that year, instead of worrying about meeting the minimum payments and continuing to accrue interest.

SUMMARY

So that’s my angst with the “financial win” of the tax return. Something as large as $5000 is an entirely different ball game than $500. Looking to get some money back and using the taxes as a ‘forced’ savings is an option. Perhaps you use that to take the only vacation in your year. But that should still be a reasonable vacation. Spend $1000 or $1500. You don’t need a $5000 vacation when struggling to pay bills or having debt that’s accruing interest.

So while I agree that the forced savings could be an excuse for a large refund, once someone receives a large refund, there should be an evaluation of their financial standing and an education on how that could be turned into a true, productive financial goal.