March 5, 2007
TO ESTIMATE IS TO UNDERESTIMATE
2ND PART: INTERVIEW SANDRA M. BLOOM EDITED BY SANDRA M. BLOOM
Samarra: Thank you so much Sandra for sharing your unique experience and insights around money with us again. A lot of my readers were very intrigued with your story. Although, in this issue you're going to give specific tips to help people stay on top of their finances, very briefly, my readers are very curious. You or your parents must have grown up with money and that is why you rarely worry about it, right?
Sandra: No, neither. My parents were the children of immigrants. They were depression babies. Samarra, believe me, I remember those early hard times very well. My Mom always used coupons and I used to help her cut them out. Whenever she could, she bought large quantities of food supplies on sale, so we'd never be hungry. Fear from hunger. That's security of another sort. One year we had a week long blizzard and no one could get out to the stores. Because of her pantry supplies, we never ran out of food. The only thing we didn't have was fresh milk. To this day I hate powder milk.
Samarra-So your parents truly passed on to you that money matters are very straight forward and matter-of-fact. Whether you have it or not, either way the systems for what you do with it are exactly the same.
Sandra-That's right. You just have to deal with it. So the first thing people should know (speaking of getting beyond the emotion) is that staying on top of your finances is a year round process. The more accurate figures you have, the more you help yourself. When you estimate, all you do is underestimate.
I will go over three things with you today.
1)What you need to take to the person doing your taxes and why.
2)What items you need to save for your records.
3)How to you set up your ledger.
Samarra: Excellent.
Sandra: Remember the purpose for staying on top of your finances is to save yourself as much money as possible. When you don't have accurate records and it comes time to do your taxes, you are cheating yourself out of major deductions. 90% of the time your "estimations" are wrong because you have forgotten more than you've remembered. The only one that is going to suffer is you.
a)Do not go to your tax person unorganized. The more time that your tax person
has to take to "pull" the information from you, the less time they have to
deal with what are your true deductions. Do not bring bags of receipts.
Separate the receipts at home. Tally up the totals and bring a list of the
categories and the totals. If you have some receipts where you are not sure
which category they belong to or if they can be deducted then bring those so
you can ask. Make sure you have gone through your cancelled checks, your
bank statements for debit card purchases, and your credit card receipts as
well as the paper receipts. It may seem like of work, but it will actually
save you time and money. It will give your accountant more time to discover
that legitimate deduction you overlooked. Bring last year's appointment
book and the check register from the checks you wrote last year. Your tax
person may have questions and find more deductions for you.
b)Take your previous years' tax return with you. There is information that
your tax person will need that will determine what is put on your current tax
forms. (At VITA they will not see you unless you have your previous tax
returns.)
What makes something deductible? Is it "ordinary and necessary" to the operation of your business? To ascertain your "ordinary and necessary" business expense deductions, save your receipts that may apply to your business. Ask yourself do I use this item at least 51% for business? If you throw away the receipt you can't even ask the question and you can't back it up if you're audited. By being knowledgeable about what you spend, you can better help yourself, even in an audit. You know better than anyone else what you spend your money on.
2. Recordkeeping
You don't have to save everything. Some people are anal retentive about it. (
What I love about Sandra is everything she speaks about regarding money is in balance-as she voiced these tips I never felt like they were a burdening task-it literally felt like it was just something to do like taking a shower or having a meal.) Save everything that pertains to your business. If you're not sure save it so you can ask your tax person or accountant.
Here are a few basic items to save:
a) Tax Returns (You need to save all of your tax forms for life. If you
paid taxes, clip the cancelled check and your W-2's to that return.
Some day you may need to prove you paid them.)
b) Credit Card Receipts
c) Monthly Bank Statements/checks/deposit slips
d) Any receipts that pertain to Medical expenses
e) Charities
f) Transportation
g) Pay Stubs
h) 1099's
i) contracts
j) W-2's.
You never know when you will need this information. It may be relating to unemployment, Social Security, a pension or the IRS. If you threw it out, you can't prove what you need to prove. Obviously this is not a complete list. But if you spent the money, stop and think do I need to keep this receipt? What if I don't have a receipt? Look for creative ways of recording what you spend. For instance, that business publication you bought at the newsstand usually has a price listed in a corner. Tear that off along with the name and use it as a receipt.
3. Ledger-Having a ledger is empowering. It allows you to know where your money is coming from, how much you're getting and where it's going to. It doesn't matter if it's on paper, in a ledger book or a computer program-whatever system is going to be the easiest for you.
The ledger columns can be:
a) Job
b) Date or Week Ending
c) Amount
d)did the check arrive
e) did the appropriate tax form arrive
f) Who did you work for
g) Any special info you need to note
h) Where money is going
You can add columns as you see a need develop.
Sandra continues to say that you should set up the ledger per week ending.
If you're an actor for instance and you have a gig for 10 weeks you'd write in your ledger each week and log in the columns above when you receive the check. If you have a full time job and you're paid bi-weekly or quarterly write per week based within the time period that you worked. Track all monies that come in: jobs, gigs, an inheritance from Grandma, etc. This is important for actors or those receiving checks where they have had no taxes taken out. It's in your ledger already so at tax time there are no surprises. Depending on the amount of the check, you can decide whether you will need to pay estimated taxes(installments throughout the year), so you don't have a lump sum and penalties to pay at tax time, or if you can offset some of it with deductions. Because you have your ledger you are empowered to make the choices that are going to work best for you!
(Now if you were like me when she said "where the money is going," I thought she meant tracking if I spent the money on a candy bar, dinner, groceries, etc. But Sandra means savings, checking, roth, investments, etc. Overall what I notice is she focuses on money coming in versus money going out. Most budgeting systems focus on where the money was spent but this has no forwarding or nest egg building purpose. Doesn't it seem like it would be a lot more positive to track money coming in versus money going out? Samarra: Wow! You must have your taxes done in January.
Sandra: Actually I can't do them until March. I have one place that doesn't have to send their paperwork until March 15th so I have to wait until I receive my final information. Well actually I do start it, I just can't finish it without the missing item. My ledger also allows me to make sure that what my employer has reported and what I have are in sync. If they are not, I have records showing the correct amount and my employer would then need to resubmit a corrected tax form. Or with my busy schedule, I may lose track of the fact that an employer didn't send my check. But with my ledger I can easily see that I didn't receive it and after a couple of weeks, I can give them a call and find out where it is. My ledger is allowing me to be proactive. I'm helping myself by being on top of my finances. Eventually what you record becomes automatic. It's a record of the things you want or need to remember.
Samarra: Should we keep track of money going out, in terms of tracking where we're spending money?
Sandra:I think it can be helpful to see what you're actually spending. If you do it, I suggest you use a small notebook, something that is always easy to carry with you. That way it will help you consistently log in what you're spending. Of course, it is imperative to do this if you are a business owner or freelancer. Again this helps you have more deductions. I would recommend setting up a filing system with categories and during the year you can file the items as you go.
Samarra: This has been incredible. Thank you so much for sharing such wonderful information with us.
Sandra: You're welcome.
Samarra: Now for the moment we've all been waiting for. What is a DRIP?
Sandra: A DRIP is a Dividend Reinvestment Plan. Remember I mentioned that my father was preparing to have to pay for three weddings? He did that by using a DRIP. When you buy stock, instead of getting a dividend check in the mail, you choose to buy additional stock with that money. A DRIP allows you to buy a fraction of a share, something that you cannot do on the open market. It automatically keeps growing until you decide to stop. Sometimes there is a small fee charged but it is well worth it. Do you see how this is allowing you to use your money to make more money?
Samarra: Yes. I can see how your father was able to build three nest eggs over time. How can we find out more information about DRIP?
Sandra: There are books in the library on it. DRIP's are usually available for standard companies like Colgate-Palmolive, Verizon and IBM. Or if you know of a company you're interested in investing in, you can ask if they have it. The combination of staying on top of your finances by tracking all incoming monies in your ledger, taking advantage of all of your deductions and investing using a DRIP makes money lose all its emotional weight. When you know what's coming in and from where, it makes it a lot easier to decide where the money should be going.
Remember you deserve to pay yourself first. Always ask yourself "what can I do to help me?" Don't try to do everything at once. Start with a little at a time and expand from there. Eventually it becomes second nature. To Estimate, Is To Underestimate and the only person that loses out is you.
Plan of Action:1) Have fun setting up your ledger
2) Please share Sandra's invaluable lessons. Share the lessons from this 2 series
blog with at least one other person.
Websites to visit:http://www.irs.gov/individuals/article/0,,id=107626,00.html
The VITA Program offers free tax help to low- to moderate-income (generally, $39,000 and below) people who cannot prepare their own tax returns. Certified volunteers sponsored by various organizations receive training to help prepare basic tax returns in communities across the country. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations. Most locations also offer free electronic filing. To locate the nearest VITA site, call 1-800-829-1040.
Locally-(212) 921-2548
VITA (Volunteer Income Tax Assistance) is an IRS-sponsored tax assistance program that was initiated by Equity in the 1970s. It is run on a volunteer basis by IRS-trained members and provides free tax preparation to members of AEA, SAG, & AFTRA. There are currently programs in New York, Seattle and Orland
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