Life is a cruel master and routinely gets in the way of our financial goals. If we want to be “normal” people, have friends, live beyond the fringes of society and occasionally have a splurge, we need money.
This is the true story of how life stole our tax refund.
After the dust settled on our taxes in April, we wound up having about $1,100 in tax refund checks coming our way, between state and federal. About the same time I was invited on a bachelor party for a coworker. I figured I’d just pay for the trip out of the refund and send what was left to our European Vacation Fund.
The bachelor party ended up being more expensive than I predicted. After having to buy a new battery for my car (which would have had to be done anyway), I left Louisville $650 lighter. Sixty percent of the windfall gone in a weekend.
I also didn’t think about the wedding a week later. Because I’m a 30 year old big boy now, social norms dictate I must gift approximately $100 to my coworker. After factoring in travel expense, lunch and drinks before the reception, and some cash to our babysitter, we were down another $150.
Almost 75% of the windfall gone….
Part of this is because I owe our childcare provider an extra $150 this month because the way the calendar falls, I need to pay for three weeks ahead instead of our normal two. I also bought a new wedding ring because my original one doesn’t fit anymore ($50), and some random fast food and restaurant meals, and somehow the $1100 was whittled down to $288.
That’s right, life stole 75% of my tax return and I need to report a robbery.
Part of this disappearance is because my credit card billing cycle is mid-month to mid-month, meaning I am paying for half of last month’s spending each month. (Before you chime in, we pay the statement balance in full each month, avoiding interest and accruing cash rewards).
I’d like to get us back to the point where we are paying our entire month’s credit card spending off at the end of the month, but like I said, that would require me finding an extra $600-700 to get us “caught up.” I don’t see this happening until we pay off our remaining student loan debt in 3 months.
Luckily we live on 64% of our income, leaving us 36% each month to pay off our debt and save a little for a nice vacation.
Because I don’t do spending updates here, I’ll just give you a peek at what an average month looks like for us:
- Average Take Home Income: $5,700
- Average Spending on Bills: $2,300 (mortgage, taxes, insurance, utilities, childcare, etc)
- Average Spending on Wants/Needs: $1,500 (groceries, supplies, entertainment, gas, etc)
- Extra Monthly Spending on Debt Repayment: $1,650 (extra lump sum on top of minimums due)
- Monthly Savings for Private School and Vacation: $265
As you can see, we cut it pretty close each month: (5,700-2,300-1,500-1,650-265= BREAK EVEN).
Yes I realize that the math actually equals NEGATIVE $15 but that is due to rounding and averaging, and the fact that not all spending is paid for in the month it is accrued.
We always spend less than we earn.
What’s the Lesson Here?
The lesson here is that life is unpredictable. That is why our spending plan is built around that unpredictability. Our planned spending on wants and needs is anticipated at around $1,300 each month, but there are ALWAYS uncertainties and surprise expenditures, so I actually plan for $1,500.
The only repercussions I will face from life stealing our tax return is in our vacation fund. I am expecting our trip to cost around $5,000. I was planning on having $1,000 of that paid for by this tax return.
While I technically still have about a $500 buffer on our debt repayment (meaning in the last month of repayment I only need to pay the full snowball amount minus $500), I am going to have to figure out some creative math in order to pay cash for this trip, because I’m tired of floating expenses on the credit card. I use a snowball debt calculator to determine this..