Here’s a Way to Collaborate on Your Budget

February 23rd, 2010

Problem

Have you run into the problem of creating a wonderful budget in Excel or some other spreadsheet software but struggled to refer to it, because it was only on one computer at home? If you’re like us, my wife tends to take care of most of the day-to-day budgeting, and by most I mean all. This means that I’m not always as aware of how much is actually left in a given category, so I call my wife to check.

Solution

My friend Troy and his wife downloaded our quarterly budget template and have been using and customizing it. One of their most ingenious steps was to upload it to Google Docs. That way either one of them can refer to it when they need to. For me, that would mean I could check it before running over to the hardware store at lunch, without having to call my wife to see if we have enough in the budget, which she may not know without looking.

However, I’m still big on communication. I will probably still call my wife, but it’s just to communicate the plans and make sure she didn’t have other more important plans with the money. But I’m able to look for myself and not put the burden on her to always know or have to go check.

Also, Troy likes that both he and his wife can be in different places, like one at home and one at the office and both access the spreadsheet at the same time. They can talk on the phone and Google Docs highlights the cell they each have selected with different colors, so it’s easy to follow each other in a discussion about it.

Document

Quarterly Budget Template (Google Docs)

You will need a Google account such as your Gmail account to access the Google Docs version of the quarterly template. Click the Use this template button. Clicking this button does two things:

  1. The spreadsheet will be added to your personal list of documents (what you see when you first open Google Docs).
  2. Your personal version automatically opens, and you can begin working on it.

In order for your spouse to view the document, you need to send them an invite. Either from the budget spreadsheet page or from your list of documents with the desired document selected, click the Share button and select Invite people…. A dialogue box will open where you can enter the email address of the person(s) you want to invite. You can select whether that person can edit or only view the document.

If you already have a budget in a spreadsheet and don’t want to start from scratch, you can import it into Google Docs either by using the Upload button from the Google Docs home or by opening a new Google Docs spreadsheet, clicking File, and then Import….

Google Docs Quarterly Budget Template

Spreadsheet Sharing Video Tutorial



If you want, you can watch this video that walks you through the basic steps listed above.

And don’t forget, you can bookmark the spreadsheet in your browser for quick easy access.

That’s it. Now you can work together and be a team.

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Do You Know How Tax Brackets Work?

February 15th, 2010
Income Tax Brackets Video

Click to Play Video

I used to think that I could potentially take home less money if I was at the bottom of a higher income tax bracket. This video gives an example of two different people’s incomes to illustrate why that is not the case.

(Can’t view Flash? View the YouTube version.)

This is a Your Two Bits explanation of income tax brackets.

Have you ever wondered how exactly income tax brackets work? I used to think that if I was at the top of one bracket and got a raise that pushed me just barely into the next bracket, I could potentially bring home less money. I know I’m not the only one who has had this misconception, so here’s an explanation.

This table represents the 2010 tax brackets. Notice that your tax rate is affected by two main factors: how much you earn and how you file your taxes, such as single or married filing jointly.

For example, if you are married filing jointly and earn $137,300, you are probably a very hard worker or doing something illegal. You are also in the 25% tax bracket.

Does that mean that you pay 25% of your $137,300 in taxes, which is $34,325? No.

Let’s illustrate why, by looking at how two people’s incomes compare: Harold earns the maximum for the 25% bracket and Becky earns the minimum for the 28% bracket. That means Harold earns $137,300 and Becky earns one dollar more or $137,301.

Let’s first look at the taxes Harold will have to pay.

The first tax bracket is 10%. That means that on everything he earns up to $16,750, he would pay 10% in taxes. So for that portion of his income he would pay 10% of $16,750, which is $1,675.

Now let’s move on to the 15% bracket. Harold will pay a tax of 15% on everything he earns after the first $16,750 up to $68,000. $68,000 minus $16,750 is $51,250. So he will pay 15% of that $51,250 in taxes, which is $7,687.50.

Continuing on with the 25% bracket, we follow the same pattern, meaning Harold pays 25% on everything he earns after $68,000 up to $137,300. So he pays 25% of $69,300 which is $17,325.

Now we need to add all of the amounts from each bracket to determine Harold’s total tax liability or what he is responsible to pay—assuming he doesn’t want to go to jail. When we add all of these together, we get $26,687.50.

Notice that $26,687.50 represents 19.4% of Harold’s $137,300 income even though he is in the 25% bracket. It’s not as bad as a straight 25%, but it’s probably about $26,000 more than he would like to pay.

Now if Becky earns just one dollar more, she is in the 28% bracket. She would pay the same amount in taxes as Harold for the first $137,300—assuming she is not a tax evader—then she would also pay 28% in taxes on the $1 she earns that falls in that 28% bracket. This means she would owe an additional $0.28 in taxes, which makes her total tax liability $26,687.78.

You can see that Becky still brings home more money than Harold, even though she just barely falls into the next higher tax bracket. So while being in a higher bracket does mean a higher percentage of your income goes toward taxes, it does not mean that you will bring home less money.

Now that you understand how tax brackets work, you don’t have to be afraid of getting a raise. And that’s a Your Two Bits explanation of tax brackets.

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Winning the Lottery

October 5th, 2009
Contradiction?

Contradiction?

Wouldn’t you love to win the lottery? Many people would…and many people try. Unfortunately winning the lottery doesn’t mean you’re financially set for life, even if you win tens of millions. This article is a nice reminder of that fact.

There are so many cases of people winning large sums in the lottery and ending up worse off than they began, because they don’t know how to manage the money. The irony is that most people who understand how to manage their money and what makes a good investment are more likely to “spend” their money on investments that are designed to reward investors. The lottery isn’t designed this way. Only a few “lucky” people will win.

Unfortunately, once those people do win the lottery, they have a seemingly large supply of money that they know even less about managing than the money they previously had. This perception means that their already poor saving and spending habits are magnified, eventually leaving them worse off than where they started.

…unless they learn how to manage their money. If they have already learned how to be good money managers, they will likely be very careful about how they proceed with the lottery winnings. I would recommend proceeding with a combination of advice that two financial radio show hosts offer.

  1. Celebrate (Clark Howard)
  2. Wait (Dave Ramsey)

Clark Howard often recommends to people that they take 10% of their windfall, whether it is from the lottery, an inheritance, or unexpected bonus and do whatever they want with it. This allows them to enjoy the money and get some of that desire to spend out of their system, while keeping the amount reasonable.

Dave Ramsey often recommends to people who will be receiving a life insurance benefit that they park the money in something like a CD for 6 months. He advises them not to do anything major with the money, simply take some time to work through the grieving process. Similarly, in a lottery-type situation, people should park the money and take some time to seriously think through what they would like to do with it. Doing so will likely also create a reality check regarding how far that money will actually go.

Statistically (and by design), most of us will not win the lottery; however, many of us will receive unexpected money at some point. My take on your two bits is to celebrate with a small portion and then park the money while making a deliberate plan regarding what to do with the rest—you may even want to consider taking a money management course.

Photo Credit: Letra Pequna on everystockphoto.com

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The Prodigal Principle

September 23rd, 2009

I read an interesting post about why Dave Ramsey Followers are Successful that basically states “the real reason that his followers have such great success is because they are ripe for change.” The author has hit the nail on the head. Dave Ramsey helps many people who have it rock bottom financially.

I call this the “Prodigal Principle.” We generally don’t feel the need to change unless our current course is causing significant pain. But like an alcoholic or the prodigal son, once we hit a real low, we start looking for help and a solution. I have encountered the same pattern. People who are at their wit’s end or are desperate for some type of solution to their financial woes are generally more open to discussing options and are much more inclined to take action.

I hope more of us can muster enough desire to change and improve our financial management before getting burned in the refiner’s fire. Listening to people’s stories on something like Dave Ramsey or Clark Howard’s radio shows can be quite motivating. It’s good to learn from our mistakes, but even better to learn from other people’s mistakes and save ourselves the trouble of the prodigal’s long walk home.

That’s my take. Feel free to share your two bits.

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Paycheck into Checking or Savings?

September 18th, 2009

I read this article, “4 Dumb Financial Moves in the Recession.” The four points are legitimate and seem to be pretty common. I just want to focus on one item in the first point, regarding emergency reserves.

The author, Marilyn Kennedy Melia, recommends setting up automatic withdrawal to move money out of your checking account into some type of liquid savings. I think this is a good idea; however, I would also recommend taking another step before this. We have our paycheck automatically deposited into our savings account. Then at the beginning of the month, we move only the amount we have budgeted to spend that month over into our checking account.

The benefit to this method is that it helps keep you within your budget and from spending all of your paycheck. If you want to use additional money, you have to move that money over to checking. This reduces (should eliminate) impulse buys. At a minimum it requires you to acknowledge that you are actually spending your money, not just swiping a debit card. It’s sort of like a macro envelope system.

Of course doing this assumes that you have a budget for the month (I’ve heard budgets can be useful). If you don’t have a budget set up or are not following your budget as strictly as you should, trying this step can help motivate you to create better budgets or follow your budgets better.

I’ve had a few people I’ve shared this with comment on how helpful it is. If you’re not currently doing it, I highly recommend you try it out.

That’s my two bits. What are your two bits? Do you do something similar that works well?

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