photo credit: Graham and Sheila

This past week was full of economic news, from the passing of the stimulus package to my home state of California finally passing a budget. How it took over 16 weeks to pass a budget is unbelievable. Unfortunately, myself and millions of Californians will be receiving an IOU from the state for our 2008 tax refund. My family took steps to alter our withholding so that we will not receive as much of a refund next year. Have you completed your 2008 tax return yet? Below are a few articles I’ve read this past week and wanted to share. Enjoy.

Becoming Debt Free wrote Bonus or Compensation – When Did The Line Get Blurred? Do you expect to earn a bonus this year or do you consider it extra money? When I worked for an investment firm most employees expected to receive a bonus. We would set our family budget for our salary only and the bonus went directly to our savings account. Now that times are tough for Wall Street I wonder how many workers are going to adapt. Hopefully they have set aside money in an emergency account.

Gather Little By Little wrote In the event I die – Information for my family and took the time to document important passwords and papers for his family. I wonder how many guys have documented user names and passwords for paypal, ING Orange, and even email in case of an emergency?

Money Ning wrote Counter Intuitive Way of Lowering Your Spending. If you are a saver, do you ever feel the urge to spend?

A Good Husband wrote How To Fight Over Money and really nailed most of the ways we can fight with our spouse about money. Although, I’m sure if a couple hit the lottery they could still find something to debate over money expenditures.

All Financial Matters wrote JLP’s Kids and Household Chores Experiment and put together a daily checklist for his family chores while his wife worked extra hours. Do you utilize a checklist for your families household chores? Has it been successful?

My Super-Charged Life wrote How To Be An Awesome Control Freak – Results May Vary . Do you know anyone that is a control freak at work? Makes for an interesting week and you can’t wait for Saturday.

Almost Frugal wrote Is a Broken Dishwasher an Emergency? She has a couple options including washing dishes by hand. My vote was to look on Craigslist or a newspaper for a good inexpensive used dishwasher. What would you do?

Mighty Bargain Hunter wrote Real estate: Asset or liability? Is your castle merely a tax write off or do you consider it a form of real estate investment? With housing prices falling more than 40% in our community, is now the time to think about a condo or town home for positive cash flow?

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photo credit: Paul Keleher

You just received your 2008 tax refund, do you have an eye on the new 24″ iMac or will you put it towards your emergency savings account? Will you use the tax refund to pay off credit cards, save for a vacation, or maybe start investing in the stock market? I wonder if the current economic recession will cause people to set money aside for a rainy day or start an emergency savings account that can pay for car repairs or doctor bills. Maybe you will use the tax return to fund your child’s 529 college savings account this year. Here are several changes my family is making in 2009 with our tax refund:

1. Change tax withholding amount. We have received a refund for the past two years and we need to adjust our return so that we don’t continue loaning the government “free” money.

2. Add funds to our emergency savings account. Our goal is to have 1-2 years of savings in our ING Orange account for emergencies in case we lost our jobs for an extended period of time.

3. Add additional funds to college 529 plans. We chose Vanguard for our 529 college education plan as they have low fees, great funds, and an easy to use website. Since our children are young they can benefit from the current prices of S&P 500 stocks.

What is tempting to do with our money:

1. Buy a new imac 24″ computer for my home office. Yes, I love macs and have had my eye on the new imac for several months. I’ve visited our Mac store several times and asked dozens of questions, and I think I’ve impressed my wife that I still didn’t buy one. My plan is to convert my Powerbook into a desktop by finding a separate LCD monitor and external mouse. Total savings $2,000

2. Buy a new vehicle. It’s tempting to upgrade to another SUV or minivan that would give our family some more legroom, but it just doesn’t make financial sense right now. Many of our friends swear by the Toyota Sienna, but we have yet to make the purchase. Our vehicles run great and they both have over 100,000 miles, but are both paid off. It’s hard to make another car payment just for a little extra leg room.

3. Buy a new refrigerator. Kind of strange that I would even put this down as one of the things I would buy with our tax return, but our fridge is driving me crazy. Each time a guest comes over to our house, they say that it’s annoying to open up. When we bought our first home our GE refrigerator fit perfect, and in our current home it’s not a counter depth model. It sticks out a good 4″ and the right door hits our kitchen door each time you open it. Very annoying, but our refrigerator works fine. How can I justify spending $800+ for a new one?

So how will you be using your 2008 tax refund? Emergency savings account or 24″ iMac?

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This isn’t the game Monopoly where grandma would give you a written IOU if you couldn’t afford her red hotel on Park Place, this is reality in 2009 where a California tax refund could be paid via IOU. What does this mean for Californian’s? We could be receiving an IOU or note from the state government that will be paid when funds are available. How long could this take? We don’t know, as the state doesn’t have a budget and county workers are having to take unpaid leave in order to bridge the budget deficit. According to an MSNBC article, back in 1992 the State of California went through a similar IOU with state workers. In 1992 the workers were paid back the salary and it also included a 5% interest rate. Sounds good, right? My ING Orange account is only paying 2.4%. But wait, how will California’s pay bills that are due? You can’t write an IOU for your rent or mortgage. And last I checked, Costco doesn’t take an IOU either.

What are your options right now?

1. Hope that California passes the 2009 budget within the next few weeks.

2. California receives emergency funds from the U.S. Government.

3. You start or add funds to your emergency savings account.

4. Buy a California lotto ticket.

5. Borrow money from a relative to pay bills.

6. Charge bills to your credit card.

7. Ignore your bills.

8. Get an extra job or increase hours.

Of the choices above, the only one that I am counting on is #3 and #8. I’ll keep adding funds to my emergency savings account and continue to find ways to cut expenses each month. Trying to find additional sources of passive income will also help in the long term. I sure hope this budget mess is resolved quickly in California and we can again focus on growth.

You are probably also wondering why someone would provide a tax free loan to California and receive a tax refund. Well, some taxpayers would rather receive a refund than owe the state. Maybe you received some additional income or did not adjust your exemptions after having a child. If we receive an IOU from the state, I can guarantee that we will be updating our exemptions immediately.

What measures are you taking to ensure you have cash available through the tax refund season? Do you count on a refund each year?

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