Done To Zen

Jim at Blueprint for Financial Prosperity mentions the FSA loophole. First of all, a Flexible Savings Account lets you put aside however much pre-tax amount you want that you can use for qualified medical expenses (including surgery, prescriptions, doctor appointments, vision care, dental care, and co-pays).

There is a loophole in the system though. Once you determine your FSA balance for the year, you can begin immediately spending it and be reimbursed. The amount you allocate is deducted from your paycheck each month so you could conceivably spend your entire year’s allocation before you even pay for it. If you were to leave your job, you wouldn’t have to pay the negative balance, between the amount spent and how much you’ve contributed, on your FSA. That’s the FSA loophole.

I think that people should be able to use the full (yearly) amount in their FSA account even if it doesn’t yet have the amount required — if you need a surgery in February but the FSA account won’t have the whole amount until August, what are you supposed to do? — but if they were to leave the job before fully-funding the account, then they have to pay back the difference.

The idea behind the program is that the shortfalls are balanced out by the expired overages, though I wonder if they’re designed to handle extreme cases.

Who came up with this?

Personally, I believe that if you don’t use FSA amount, then the amount should be returned to you after getting taxed.

What’s the point of forcing people to use the money before the end of the year, really? Or making employers forfeit their reimbursements if the employee leaves the job?

I put in a couple of hundred dollars in an FSA account once and had to leave the job soon thereafter. I was told that I had to use that money by the time I left the job or I would forfeit it. I ended up spending it on a new pair of glasses that I didn’t need so I didn’t “waste” the money. I never used FSA again (of course, I didn’t know until now that I could use the funds before I fully funded the account). Seems somewhat counterproductive.

Am I living beyond my means?

FreeMoneyFinance linked to an article by Glenn Curtis that talks about the five signs that you are living beyond your means.

The questions are all from the article:

1. Your credit score is below 600

Nope.

2. You are saving less than 5%

I save around 45-50% of my paycheck; this doesn’t count employer 401K match or rental income. Until I bought my home, I used to save between 90 and 95% of my take-home pay.

3. Your credit card balances are rising

Nope. I use my credit card for all purchases, but I always pay the balances off by the end of the month.

4. More than 28% of income goes to your home

Sort of. If I look just at my mortgage (i.e., don’t count whatever goes into escrow), my mortgage comes to around 29.5% of my monthly gross pay. If I count my rental income (which, admittedly, isn’t great, but it’s enough to be significant), I come in at 27% of my gross income. If I count the freelancing work I sometimes do (which, again, doesn’t bring in a lot of income but does bring in enough to count), my mortgage would be around 26% of my monthly income.

5. Your bills are spiraling out of control

Not really, but it feels like it. Somewhere between 5 - 10% of my gross pay goes towards fixed and variable expenses, but it feels like a lot.

Overall

Surprisingly — by these measures, at least — I’m doing OK. I thought that I was far worse off than I actually am. Maybe I just got used to saving 95% of my paycheck, so 50% feels like I’m wasting a ton of money…

What about you? Are you living beyond your means?

Wouldn’t it be great to write off moving expenses? You can do just that if your move passes the 50-mile test and it is work-related. What is the 50-mile test? I’m glad you asked. It’s a convoluted rule that Congress came up with to ensure that your move is necessary and not a way towards an easier commute.

To figure out whether you meet the 50-mile test or not, look at how far your old office was to your old home and add 50 to it. So, if you lived 10 miles away from your old workplace, your new workplace should be at least 60 miles away from your home.

Work-related means that you moved because of work and not because you wanted a change of scenary.

First, moving expenses generally are deductible if incurred within one year of starting a new job. Secondly, you have to work full time at a new job for at least 39 weeks during the first 12 months. The worked weeks don’t have to be consecutive or even with the same employer. BankRate

Eligible moving expenses

You can write off things like transportation costs (ex., the mileage if you drove a car to the new residence), cost of shipping personal effects from your home, cost of shipping personal effects from some other home, cost of packaging items to be moved, lodging costs (both at the location of your former residence — within one day of moving — and your new place).

Ineligible moving expenses

You can’t write off the cost of selling your old home or the cost of finding a new place of residence. If you ate out during the trip from the old place to the new place, you might love the meal but you unfortunately cannot write it off.

Another thing to keep in mind: you can only write off what you spent. If your employer is reimbursing you for relocation expenses, then you can’t write off that amount. But if it cost you $3,000 to move but you only got reimbursed for $2,000, then you can write off the $1,000.

Mrs. Micah challenged everyone to find a single step to better personal finance:

Find one step you can take to make your financial system better or more organized.

Like mbhunter at Mighty Bargain, I have about a hundred steps I can take to make my personal finance better or more organized, but since we’re restricted to picking only one of them, I’ll go with:

Make savings automatic.

I do this already with 401K and for a weekly transfer of $30, but for the bigger amounts, I still do it automatically. For example, my emergency fund is still being built up manually. The reason I do it this way is that I have variable expenses that, well, vary widely from month to month. I’m worried that I’ll need my entire paycheck for something or another one month, but as the emergency fund amount is transferred automatically, I won’t have enough funds available for something — whether be it the transfer to the emergency fund or the bill-pay.

But if I really think about this, this is not a likely case and I’m only using it as an excuse to psyche myself out. With my variable expenses, I typically don’t pay them on my credit card around the end of the month, which means that I usually have a month and a half to pay them off. If it is the case that I need the extra money to pay these expenses off, then I have more than enough time to transfer money out of my emergency fund to make the payments, though I don’t anticipate this to ever happen.

Steps to take

1. Set up an automatic transfer of half the amount I want to save from each paycheck.

I’ve been procrastinating a great deal for a plan so simple…

Wow, where did all the time go? It feels like July 4th just went by and all of a sudden, it’s July 15th. Anyway, since we’re halfway through July, it’s time for me to look at how I fared so far and what, if any, adjustments to course I should make over the next 15 days.

Finances - what I did right

1. I paid off July’s gas bill in June and decided to save the amount instead of wasting it on something or another.
2. I haven’t used my credit card for an entire 15 days, which is awesome.
3. I’ve successfully completed my 30 day trial of not eating out, and I plan to continue over the rest of the year, but maybe not so stringently. Maybe I will allow myself to eat out a couple of days a month; I don’t know yet.
4. I saved the full amount for my emergency fund.
5. Though I really wanted to work with a personal trainer, I forewent one as he was so expensive. For a while there, I thought I would be going for it despite the cost, but I fortunately decided otherwise soon thereafter.
6. I upped my 401K to 10% of my salary in June, and despite (perceived?) financial hardship, I kept it there through today; I don’t plan on changing it over the course of the year, but who knows? Thy mind is a very fickle thing.
7. Paid off all bills without procrastinating. I rarely ever pay bills late (and only when we have the roll-over functionality) but I for whatever reason keep waiting until the last minute to pay them.

Finances - what I did wrong

1. Haven’t been accurately tracking all my cash spendings. I know I spent around $60 on groceries, so far, but it’s a guesstimate.

Finances - what went right

1. I learned that I will be getting a bonus. Kill me if I touch a penny.
2. I landed an unexpected freelancing job that will earn me a couple of hundred dollars.
3. I landed another unexpected freelancing job that will also earn me a couple of hundred dollars.

Finances - what went wrong

1. There is an expense coming around December (where I do either an atrocious one-time pay or more reasonable monthly payments) that I knew about, but they are offering a pretty significant discount if I do it right now. But it means I have to cough up between five hundred and a couple of thousand dollars right now, depending on how I want to do it. Just so happens I have just enough in my emergency fund to cover this expense, but it will kill me to have to use it. I’m still struggling with what to do.
2. I really wanted to work with a personal trainer but his fees ended up being way too high and so I had to not do it and now I’m feeling bad.

Update on trials

I successfully finished my “stop eating out” trial, like I mentioned before. I also, and I continue to wake up at 4AM every day, though there was this one day when I didn’t because my alarm decided to not work.

I also did an unofficial trial over June that I haven’t listed anywhere (I think?): I stopped reading news; mainly, I stopped reading any and all political blogs that I was subscribed to. I used to be something of a political junkie, but I stopped depressing myself every day with, well, depressing news (it is far harder to find something positive on political blogs than it is to find even in news, if you can believe that).

Though I wasn’t really thinking about it, I also fell into the habit of not reading any “real” news (yeah, I go to digg and read some technology/finance stories occasionally). I realized it after maybe 10 days and from then on stayed away from newspapers consciously.

Another habit I wanted to try unofficially — which means that it’s OK if I slip up — is stop purchasing ice cream at Cold Stone. Having come upon it accidentally, I’ve been going to it pretty regularly the last two months or so. Yesterday marked the end of this trial, and I can’t say that it was particularly hard. Not getting to use my credit card for 15 of those 30 days might have helped. ;-)

On July 10, I’ve also quietly celebrated my 6 months of chocolate fasting with a big chocolate cake. Just kidding. I actually didn’t celebrate it at all — I didn’t even realize it until yesterday. I do think this is the longest I’ve ever went without eating chocolate. I still get the urges, especially when I’m blind-sided by pictures of and/or actual chocolate manifestations, but it’s hard to give up after so many days of staying strong. :-) My biggest fear is that I will accidentally eat something that has chocolate in it.

You might have remembered that I once upon a time (well, 15 days ago) informed you that I would be running/writing in the morning. This failed to happen. I haven’t written a single thing this month (on my book) and I did run a couple of times, but it was in the evening and not in the morning. This isn’t too great, but that’s life sometimes, and I’m OK with pushing them back to August. We shall see.

So: I completed 8 trials so far this year (chocolate and vending machine fastings, making my bed every day/morning, karate, waking up at 4AM, restaurant fasting, political blogs fasting, news fasting).

Ratings

Objectively-speaking: 9 out of 10
Emotionally-speaking: 4 out of 10