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Well Crap

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It’s been a long time since we’ve had a major financial set-back. A really long time.

In fact, everything has been going rather smooth over the course of the past year or so. Income is up, outflow is down, we just hit the half-way point in our debt reduction journey. Life is good!

Until…..tax time.

We met with a CPA on Friday. Turns out we didn’t have all our sh-t together so we have to round up the last of our documents and get them over to the office early next week. So we don’t have official numbers, but it’s looking like it’s gonna be bad. Like….possibly in the 5-digits level of “bad.” Yeah. We may owe the IRS to the tune of over $10,000. How the f do we owe so much? I don’t even know where to begin.  I  thought my payments through my full-time job would help offset things more than they did. Clearly.

We have a LOT of deductions to claim. We also have tax credits we can claim. We’re not out of hope.

But it felt like I’d been punched in the gut after our CPA meeting. We don’t have $10,000. Not in cash. To owe that much would officially move us BACKWARD in our debt progression. The first backward movement since we started our debt payoff process nearly 3 years ago. We’ve had months of stagnation, but we’ve never gone BACKWARD. Never ADDED to our debt (mortgage not included). But my plan (to have cash or put it on a credit card to buy us an extra month) isn’t going to work if we’re talking about that much money.

We’re scrambling to think of a plan so we can pay with cash and not have to set up a payment plan (accompanied by penalties and interest) with the IRS.

In the meantime, we’ll be having another meeting (or two) with the CPA to figure out exact numbers and the best course of action. I’ve also suspended all non-essential debt-payments so we can pile up some cash. Unfortunately, given my recent agreement with the medical bill place, I’m committed to minimum sized payments of $1215/month through April. That, in addition to my minimum student loan payments, puts us at a minimum of about $2000/month. We’ve only been budgeting $3,000/month toward debt and having a minimum payment of $2000 only leaves us about $1,000/month of “wiggle room” to try to stockpile cash for our upcoming IRS debt payment. It’s not nearly enough. Particularly if we owe in the tens of thousands of dollars. omg. Just saying it makes me sick to my stomach. I hope to God it doesn’t turn out that bad. But, as the saying goes, hope for the best and plan for the worst. So all non-essential spending is DONE. In the meantime, we will hoard and stockpile money as best as we can. We do have an EF ($5,500) and a couple various savings accounts. Though it’s a bit like stealing from Peter to pay Paul. It’s certainly not ideal. But neither is the thought of acquiring more debt. It gives me a headache to even consider the thought.

Many of you had warned that we should beef up our EF now that we’re homeowners. This wasn’t the intended purpose (most commenters were thinking more in-line with needing to repair/replace an old roof or HVAC, etc.)….but now that we’re in this situation, it’s sure making me think about how great it would be to have a full $10,000 EF. This IRS tax problem would be solved (and then the “problem” of re-stocking the EF is much easier and less stressful).

So that’s my “well crap” update. I will bring you a February debt-update (which, as mentioned, is lower than the originally planned $3,000 due to the need to save all non-essential payments for our upcoming tax bill). In the meantime, I’ll just keep putting one foot in front of the other. Hoping for the best. Preparing for the worst. Ugh!


The Savings

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I received several questions about the $200 budget item towards savings that I listed in my last post.    The answer is a bit complicated.   We currently have have several savings accounts that are for irregular expenses…with the idea that we could also use those accounts as an emergency fund in a true emergency.   These funds are currently auto-drafted into the savings accounts every payday.  Each category receives $20 a month added to it.  However, the original thought was that some categories are close to being “fully funded” and then that money could be reallocated to other categories until they need “refilled”.    Here’s how I have things divided:

Savings 
Work expenses100.03
Home improvements133.00
fun/holidays55.00
Gifts5.00
clothing85.00
pets70.00
replacements55.00
Auto185.02
Irregular expenses (auto registration/costco/ AAA)39.53
Yard/garden/pest control70.00

Total: $802.58

In explanation:

  • The work expenses category covers things like continuing education, licensing and replacement items for Hubby’s work.  Once we reach $500 this will be considered fully funded.
  • Home improvements will never be considered fully funded.
  • The Fun/holiday fund covers everything from fireworks on the fourth of July, extra grocery expenses for Christmas baking, campground fees, and the occasional movie date night.This will be considered fully funded at $100 while we are still reducing debt
  • Gifts are a hard one.  I will have to think about what I would consider fully funded.
  • Clothing I will consider fully funded at $100, mostly because we do not have expensive clothing needs.
  • Whereas we have an older dog and an older cat that at some point in the future will need a greater amount of vet care, I would not consider this fully funded until we reached $1000
  • The replacements category is actually very new to our budgeting, inspired by needing to finance a fridge when ours died.  This is meant to be money for when an appliance dies, or a new mattress etc. is needed.  I am not sure where I would consider this fully funded, most likely at $1000+
  • The auto category is pretty self explanatory.  We currently own one vehicle out right and have a loan on our second.   These funds are used for maintenance and hopefully will eventually grow enough that we can replace a vehicle by paying cash.
  • The Annual expenses category covers things like AAA and costco memberships, and car registration.  I would like to grow this to be able to pay for six months of auto insurance at a time in order to receive the prepay discounts.
  • The final category is yard/garden.  I LOVE veggie gardening.  We just moved into our home last summer, so this will cover soil amendments, hardscaping, seeds and repairing the disaster of a sprinkler system that currently exists.   It also covers pest control to come out four times a year to treat for voles and the giant wolf spiders that we get here.  After this coming summer, the amount going into this account should be able to be reduced significantly as some of the much need landscaping is completed.

Obviously, If I wanted to keep putting money into these categories until they were all fully funded, I would be saving forever, and that would impact my debt payoff.   I am currently leaning towards continuing to save in them at my current speed until I reach a total of $2000 across all the accounts.   At that point I would simply add to the accounts if I had used the funds.

What do you think?  Am I making a mistake by combining my savings categories and emergency fund?  Is there something I should be saving for that I am not?

 

 

 

 

 


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