Sorry, but operating in accordance with a budget requires more discipline than that.  A decision to spend should be made in consideration of the spending limit set in your budget. If your spending is maxed out in a discretionary category, you stop sending in that category. Merely looking back at what you spent is interesting history but not financial planning.

Unfortunately, the paycheck-to-paycheck crowd are better at history than they are at planning or budgeting. If you want to mess with someone who claims to be following a budget, ask them toward the end of the month how their food and entertainment spending compares - on that day - to the amounts they budgeted for that month. If they can’t tell you with any precision, you’ve exposed them as a faux budgeter.

Mr. ToughMoneyLove is not being a hypocrite here. We don’t pretend to operate with a true budget. We have a spending plan that includes non-discretionary categories plus saving, investing for retirement, and college expenses for son number 3. Everything else fits into discretionary spending. After 32 years of marriage and no consumer debt, we pretty much have a handle on that. But that will change when we retire.

We’re already working on a retirement spending plan that will need to be a lot more rigorous. Our retirement spending plan is a long term work in progress. Right now, it mostly guides us in how we need to invest to fund our plan.

So where do you come down on this issue?

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The first was with a retired man who came in without his wife. She was at home, disabled with diabetes and related maladies. The husband was in his late 60’s but still working full time as a patient transporter at a hospital. He said he was about worn out with the physical nature of the job. On top of that, he was quite unhappy with his wife, telling me that she was warned during her last hospitalization that when she returned home, she needed to get active or her health would decline further. According to the husband, she did not follow that advice. They had good insurance but were still spending lots of money on medical care. This was on top of first and second mortgages. He was the only truly unhappy “retiree” I worked with this year and it was all because his wife was a health care burden with no motivation to improve her lifestyle. The guy was just beat down physically and mentally.

My second last minute filer was remarkable in how unprepared he was for our meeting. He had enough medical expenses and charitable contributions to justify itemizing but he neglected to bring documentation. He spent most of our session attempting to gather the information by phone.

My third taxpayer was fascinating. He was 90 years old, living by himself in a home he bought 55 years ago. (His wife died 3 years ago.) He had two government pensions, one from the military. I inquired about his military service. He served 23 years active duty, then joined the National Guard, and then the Army Reserve, for total service of 35 years. He was a paratrooper and – get this – was jumping out of airplanes on training exercises at age 58! The other pension was from the Post Office. The final amazing fact related to his limp and cane. Last November he broke his hip. That’s not unusual for an older man, except for how he broke it. He told me that he installed a chin-up bar in his garage 40 years ago and used it regularly. On this occasion, he slipped dropping off the bar, causing the break. Chin-ups at 90? Can you imagine? Oh, and he contributed over $50,000 to his church last year. (Yes, I saw the signed letter.) When I told him that he couldn’t deduct all of it because it exceeded 50% of his income (meaning he still paid taxes), it didn’t bother him in the least. That is one tough guy, all the way around.

My final taxpayers were a retired married couple. They had minimal income from Social Security, did not pay any taxes, and did not need to file a return. They came in wondering if they were entitled to any refundable credits because they had cared for and supported two of their grandchildren for ten months last year. In November the two grandchildren were returned to their mother. This couple had cared for them for 14 years (one was 13 and one was 14). I asked if it was difficult to have them leave after all of that time. The grandmother said she thought it would be but then “peace broke out” in their house. She was enjoying a peaceful retirement, finally.

So that is the end of my volunteer taxpayer stories for 2010. I will be having lunch with the other volunteers next week as sort of a wrap-up party. If asked, I know I will return next year. There is so much I have learned from the folks I have assisted. I want to continue that education.

Thanks for reading. I hope that sharing these stories has benefited you.

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We we will be sending another large tax check this year. Doesn’t bother me a bit, as long as we are not penalized for under-withholding. Unlike my friend J. Money at Budgets Are Sexy who spent his refund before receiving it, I consider a tax refund to be a planning failure.  I’m also not a fan of using an accountant for a routine tax return. This year I didn’t even buy TurboTax. Instead, I downloaded the free version of TaxAct and diligently resisted its efforts to upsell me into an upgrade.

A few interesting reads this week:

Moolanomy published a piece about investing lessons to learn from our lost decade.  I agree with the lessons but I’m not so sure the lost decade period has ended.

The AARP offers its take on gold investing. The price of gold peaked in December 2009. Did everyone sell? I don’t think so. The so-called buy indicators (e.g., bad news in the world) haven’t substantially changed but the price has fallen. Sorry gold fans, I just don’t get it. It’s not investing, it’s gambling.

Time Magazine published an article about financially bribing young children to do the right things in school. I don’t care if it “works” for some kids. Let their parents bribe them. Don’t use my money. Better yet, for the kids that must be bribed to perform, let’s pay their parents not to have any more kids.

Also take a look at this week’s Carnival of Personal Finance and Carnival of Money Stories.

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I’m curious about what folks will do with their tax refunds in these challenging economic times.

I can’t generalize and call refund recipients “taxpayers” because almost half of U.S. households don’t pay income taxes. (Source)  Many of the non-taxpayers will still receive refunds because of the plethora of refundable tax credits a/k/a income re-distribution channels that Congress is creating. It is misleading for a non-taxpayer to even refer to their check from the IRS as a “refund.” It’s actually a gift – from the real taxpayers. You are welcome. (Mr. ToughMonelyLove says with a tinge of sarcasm.)

Bankrate.com surveyed tax filers about their plans for their refund.  30% said they would pay down debt (good), 28% will save or invest (also good), and 26% will buy food or pay utility bills (what?). (Source)

I don’t trust that last 26% number. Do those refund recipients plan on eating more food during refund season? Will they be adjusting their thermostat to a more costly setting?

I think the “buy food with my refund” folks have already spent their refund, in anticipation of receiving it. Maybe they bought something they didn’t need. (An iPad perhaps?) This left them a little short in the “food” and “utilities” categories. That’s what I’m thinking.

But then Mr. ToughMoneyLove is a diehard cynic.

What do you think?

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My first return was for a married couple in their late 70’s. The husband was a proud man who, according to his wife, had struggled mightily over the past few years to prepare their their returns on paper. Last year they ended up going to one of the commercial tax prep services, which they really couldn’t afford.  After he worked on their 2009 return for three days, she finally persuaded him to come in to our office.

Thanks to the excellent IRS tax prep software, I was able to quickly work through a couple of issues that had bothered him. He was quite relieved and pleased to be done with the return, at no cost. Yet the pride in him emerged as he got up to leave. He said “I know you are a volunteer here but could I take you to lunch to say thank-you?”  I politely declined but asked him to bring me a candy bar when they came back next year. He agreed with a smile.

A man about my age brought in his 88 year old mother. This was her first time in our office also. Apparently her sons had worked on her returns in the past but felt that some of her issues were over their head. They discovered our service by accident. She moved very slowly in her walker but was sharp as tack mentally and full of the joy of living.

I noticed from her paperwork that she had teacher’s pensions from two different states. I asked if she had taught for a living. Yes, she said. Twenty-three years in one state then twenty years in our local school system. I was amazed: Forty-three years as an elementary school teacher!  I asked her if she enjoyed it. “Oh yes”, she said. “I never once woke up not looking forward to getting into my classroom.” Wow. How many of us can say that about our work? What is even more amazing is that she had been a widow since 1966. Her husband had died at age 44. She raised her sons on her own and never remarried.

My final taxpayer was a jovial African-American man in his late 70’s. As I worked on his return, we chatted. He was originally from a small town in Mississippi. A taxpayer working with another volunteer overheard our conversation and announced that he had also lived in that town. Next thing you know we had a mini-reunion right there in the volunteer office, with two older gentlemen swapping stories of places and people they remembered. Everyone was enjoying themselves, including me, just listening.

Once again I was reminded by these experiences that these folks were not wealthy by any financial measure. On the other hand, they seemed happy and contented about life and made the best of what they had.

We all should be so wealthy.

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1.  Almost no one is reporting capital gain income on investments in their retirement funds. A few have dividends to report. On the other hand, many retirees have obviously moved most or all of their money into savings accounts and CDs. This was done out of fear but it sure won’t help with inflation down the road.

2.  My first taxpayers were a married couple with a decent retirement income from a combination of government pensions, Social Security and bank/CD interest. Surprisingly, this couple had also spent an amount equal to their yearly income on a brand new Mercedes. The husband gave me the impression that this was a last spending “fling” , meaning that he didn’t expect to be around much longer. He referred to the likelihood that his heirs would enjoy the new car for longer than he would. Weird way to go out, if you ask me. But he was smiling and jovial so if he paid cash and it made him happy, who am I to criticize?

3.  A young couple came in, both unemployed. Both had good jobs in 2009 but had lost them. I give them credit for fighting the good fight because each had multiple W2’s from short term or part-time jobs they took on to make ends meet. No unemployment benefits for them. They were so excited when I told them they would be receiving a four-figure refund.

4.  An eighty-year old woman asked me for advice about her plans for her refund. She was worried about the cost of air conditioning her old house this summer. She wanted energy upgrades, e.g., new insulation. I referred her to some resources for advice in that area but I sure wished she had family around to advise her. I was concerned that some fly-by-night contractor might take advantage of her pleasant, trusting nature. I also like the fact that this nice woman (like most that I meet in the volunteer office) get dressed up, hair done, make-up on, the works, when they get their taxes done. For the older generations, attending to important tasks and events still means looking the part.

5. Another elderly woman surprised me at how much of her meager income she was giving to her church. I understand the 10% tithe principle for some people but for a retiree on a fixed income, barely above poverty level? I think church leaders need to intervene and adjust giving expectations in those situations.

6. Another frail, elderly woman came in with her daughter. This woman was so relieved and proud that her daughter was available and willing to her help her. Family support can be so much more valuable and effective compared to government support. I hope my kids can still tolerate me at that age!

7. All of my five taxpayers this week (except the unemployed couple) owned their homes, mortgage-free. I wonder if this will be the case for similarly aged retirees 10-20 years from now?

8. I observed another volunteer in the office spending an excessive amount of time working with stock buy/sell transactions with one of his taxpayers. We don’t see much of that with taxpayers who use free tax services. I asked my colleague about that taxpayer’s return. He said it was clear that her broker/”financial advisor” was churning her account. Some of the transactions were as small as $175.  Not surprisingly, all of that broker activity had resulted in zero income for the year. He encouraged her to find another place for her money. Many times that advice doesn’t work for the elderly unless a family member intervenes. They are frozen by fear and ignorance.

There are weeks where my four hours as a tax volunteer seem to overshadow my forty-hours as a paid professional. By “overshadow,” I mean the sense that I have done something more positive for me and for others in those four hours than in the other forty combined. Do you ever have that feeling? Am I becoming Mr. Not-So-ToughMoneyLove?

I’ll say this: It gives me hope and ideas for enriching my future retirement years.

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I had three interesting taxpayer experiences today. The first involved a widowed woman in her late 70’s. Her arm was in a sling so her daughter drove her to our volunteer office. She lived on a very small pension, Social Security, and some CD and bank interest. Not much income in total. It helped that she owned her home, mortgage-free.

We were about finished with her return when I asked about property taxes. Yes she paid some – over $3,000! In our part of the country, that is a significant amount. I was shocked because most of my older, low income taxpayers had received significant property tax abatements from the city. I inquired about that. She said she had not asked. That surprised me also, further considering that her daughter lives in town as well. Those property taxes ate up most of her pension income.

What’s even worse about the size of the property tax bill is that she lives in a two bedroom, one-bath house. The problem is that her house sits on some very valuable real estate near one of our local university campuses. I encouraged her to get to work on an abatement on her 2010 tax bill. It may be too late because most of the tax abatement programs are “freeze” programs. This woman should have frozen her property taxes years ago. Note to self: Always be on the look-out for property tax abatement programs for senior citizens.

My second experience was with a retired couple. The husband was a retired fire fighter. He had a city pension and, at age 58, was receiving a Social Security disability benefit. They had significant tax problem. The wife had inherited a unit in some oil and gas rights in Texas. She received a five-figure royalty in 2009. Unfortunately, this couple spent it all and did not hold anything back for payment of income taxes. Now they have a four-figure tax obligation and have three weeks to find some cash to pay their taxes. Not smart.

My third experience did not feel right. This was another elderly woman with a very small Social Security benefit and a part-time job as a home caregiver for an older man. First, her W-2 from the older gentlemen was handwritten. Also, nothing was withheld by her employer for anything. That was the first head scratcher.

Second, she told me that she was supporting her five year old grandson in her home. I asked about the boy’s parents. All she could tell me was that the boy’s mother did not live with her and had no income. She didn’t say how or where the mother survived with no income. Anyway, based on these facts, she was entitled to significant refundable tax credits, resulting in a four-figure tax “refund” to someone who didn’t make enough to pay any taxes. This is income re-distribution pure and simple. I don’t have any problem with that in some cases but I’m not sure about this one. A younger man brought her to our offices. I never did find out who he was but I’m very curious.

The final issue with this woman was that she told me she never actually finished up and filed a return for 2008. At her reported income level she did not have to file, unless she wanted to claim those same refundable credits. She didn’t seem concerned when I suggested that she could file a return now. Weird.

I continue to enjoy the learning experiences from my interactions with senior taxpayers.

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