An Experiment in Spending Less - Maternity Leave
I’ve always known that my biggest spending weakness happens during the day when I’m at work. But I never was able to test it for more than a couple of days in a row. The lure of lunches out and afternoon snacks was too strong.
After being on maternity leave these past three months, I’ve been able to see what it would be like if I nearly eliminated spending during the day. My husband and I share one car which he uses to go to work everyday. Therefore if I want to go anywhere during the day I have to walk and I have to take my son with me. Since we live in a fairly residential area, it’s a real hike to any exciting shopping options.
So waht have been the results of this unintended experiment? A big change in my spending habits. Typically, I spend into my ING Direct overdraft before my paycheck arrives. On maternity leave this doesn’t happen. It’s even more impressive when you factor in that my income has decreased 20% during my leave.
When I go back to work in June, you can bet I’ll be bringing my lunch to work and watching the snacks. I know I can do it now and have witnessed the huge impact it can have on my finances.
Trent at The Simple Dollar wrote a far more comprehensive post on Trimming the Fat from Your Work-Related Spending.
Buying a Foreclosure - An Interesting Story
In March, my husband and I purchased our first home. We live in Arlington, VA across the river from Washington, DC which means that real estate is pretty expensive in our area. As a result, almost all the homes in our price range were foreclosures or short sales.
The nicest place that we could afford was a two bedroom, two bath condo is a three year old building. It had an underground parking spot, fancy kitchen, a balcony and was next to the Metro bus stop. Pretty much everything we were looking for in a home.
So what was the problem? The previous owner had been foreclosed on and in retaliation he stripped the condo bare. He took everything and I mean everything. The kitchen was missing every appliance - fridge, stove, dishwasher, microwave, washer and dryer. He even took the four-prong outlet for the dryer out of the wall - couldn’t tell you why.
Now taking the appliances isn’t all that unusual. He also took all the doors out of the condo - closet doors, bedroom doors and bathroom doors. Most of the light fixtures also went with him. Next he took everything in the master bath - shower head, medicine cabinet, large mirror over the vanity and my personal favorite - the toilet. Why in the world would you take the toilet with you? You can get a new one at Home Depot for a little over $100 and the toilets in the condo weren’t anything special.
Lastly, he took around 25 knobs off the cabinets and drawers in the kitchen. Now this shows an impressive attention to detail. The time it would take to unscrew all those little knobs that would be so easy to replace. I thought it really made a statement.
This is the condo we ended up buying. Since there were so many things missing from the apartment, it had been on the market for months and the price had been lowered three times putting the condo squarely in our price range. Why Fannie Mae, the bank that now owned the condo, couldn’t be bothered to fix everything, I’ll never know.
But I’m grateful, we have an almost new condo and since we had to replace most items inside, we also have a chance to fix things up exactly the way we like! So in a way I should probably be thanking the previous owner - otherwise a place like this would have been too much money and already snapped up!
Do you have an entertaining foreclosure stories? If so, please share in the comments.
How not to start a new blog
Here’s how not to start a blog:
- Sign up for a domain and a Wordpress account on a whim after reading a really excellent article on blogging by Steve Pavlina.
- Start writing immediately without giving any thought to a plan for your blog.
- Not building up a stash of already written articles for when I didn’t have time to research and post.
- Have your first child a couple of months after starting your blog.
- Have the focus of your blog become completely pointless (when we decided not to make the move to London).
For an excellent description of how to start a blog properly as well as tons of other useful information, check out Chris Guillebeau’s 279 Days of Overnight Success on his Art of Non-Conformity blog.
Now that my adorable son is almost three months old and I’m getting a functional amount of sleep - I’d like to get back to blogging! I just need to decide what direction the Pond will take.
In an interesting side note, I recently started reading Pam Slim’s inspiring Escape from Cubicle Nation blog and it looks like she started blogging when her son was about the same age as my son now. This must be the time when new parents can finally come up for air!
$8000 First-time Homebuyer Tax Credit
Tax credits and deductions usually don’t get me very excited, but I’ve been following the first-time home buyer tax credit in the stimulus package with unusual interest over the last month. As we may actually be buying a condo this month, an $8000 tax credit makes a huge difference for us.
The original law had a tax credit of $7500, but it was essentially a loan as the credit had to be paid back in $500 increments on your taxes every year for 15 years. If you sold the home before then, the full amount was then due immediately. A first-time home buyer is defined as someone who has not owned a home in the previous 3 years. If this tax credit had stayed on the books and our condo purchase came through this month, I’m not sure we would have taken this credit. In fact, the original $7500 tax credit has been found to have little effect on the housing market.
The final bill of the stimulus package (American Recovery and Reinvestment Act of 2009) has an $8000 tax credit for first-time buyers (same definition as above). The $8000 is not a loan and is yours to keep as long as you live in the home as your primary residence for three years. If you do sell or rent it before then, you would have to pay the tax credit back. The size of the credit is 10% of the purchase price of your home up to $8000. So as long as your home costs more than $80,000, you can take the entire credit. However, the credit is subject to income limitations. You have to make less than $75,000 if your single and under $150,000 if you are married filing jointly.
What is less widely know about the tax credit is that even if you purchase your home in 2009, you can claim the credit on your 2008 taxes! We did this and used the money to immediately improve our new home. If you’ve already filed your taxes for 2008, you can submit an amended return to claim the credit early. But it’s worth looking at whether or not the credit will be more valuable to you in 2008 or 2009.
Do you plan of taking advantage of the new first-time home buyer tax credit?
Saving for retirement while living overseas
I received a question from a reader about how to save for retirement in his Roth IRA, while living outside the United States. Specifically, he wanted to know whether he could just pay taxes on the amount he wanted to contribute to an IRA and exclude the rest.
If you earned less than $87,600 in 2008 and take the foreign earned income exclusion (FEIE), you have to take it on all your income. You can’t separate out a portion in order to contribute to an IRA.
However, if you earn more than $87,600, anything over this amount but below $5000 can be contributed to an IRA. So for example, say you earned $91,000 in 2008. The difference - $3400 - can be contributed to an IRA because you will also be paying US taxes on the $3400.
If you don’t earn over the FEIE amount of $87,600, one other possible way to contribute to an IRA is to take the foreign tax credit instead of the FEIE. This can be done by filing IRS Form 1116. Depending on the tax rates of your current country, if they are a similar level to the US, you may still end up owing none or very little US taxes on your income after subtracting the foreign taxes you’ve already paid. But if your foreign tax rates are low, you may owe a lot of US taxes not covered by the credit.
By taking the foreign tax credit though, you can contribute the full $5000 (assuming you earn > $5000) to an IRA since all your earnings are potentially subject to US taxes. This is still true even if the tax credit for the foregin taxes completely wipes out your US tax liability.
It’s definitely worth doing both Form 1116 (foreign tax credit) and Form 2555 (FEIE) to see which works out better for you.
Here are two articles that might help:
http://www.irs.gov/pub/irs-pdf/p54.pdf
http://www.aca.ch/joomla/index.php?option=com_content&task=view&id=156&Itemid=46
Link to form 1116 and the instructions:
http://www.irs.gov/pub/irs-pdf/f1116.pdf
http://www.irs.gov/pub/irs-pdf/i1116.pdf