Advanced Personal Finance

Every year, I make my ‘tax document checklist.’  It’s crude but effective.

I take out a blank sheet of paper, write ‘Tax stuff’ at the top, then write down all the documents I expect to come my way that I’ll need to file and hope I don’t leave something out.

I should probably have a better system, so this is my effort to improve.  Below I’ve listed the things that are typically on my tax document list.  Yours may be longer or shorter.  If you find it useful, here’s the list in PDF format.

Income

I break the list down into two, not very original sublists.  Income’s the first one.  (Bonus points if you can guess the second.)

• W-2s - Think hard about any second job’s you’ve had during the year.  If you’ve changed primary employment, you’ll be getting a couple as well.
• Bank interest 1099-INTs - This one can be tough if you have accounts all over the place trying to ‘optimize’ your banking.  Me, I just do everything at USAA.
• Stock dividend 1099-DIVs.  Whether through a mutual fund, or by owning individual stocks.  You get one from each fund company or brokerage house.  What a pain.
• 1099G for state/local income tax refund
• Miscellaneous income - Again, tricky.  It’s easy to forget some of these.  Just a few: prizes, scholarships, jury duty pay, unemployment benefits.

Expenses

• Mortgage interest statement
• Real estate tax statement
• Student loan interest paid
• Gifts to charity
• Education expenses (post-secondary education)
• Child care expenses
• Miscellaneous expenses - Could include moving expenses, expenses related to looking for employment, volunteer work, tax prep, home office (if you’re taking that deduction)

I’ve left off stuff from this list because it’s my list.  But since I’m a regular kind of guy, I think it suffices for many people.  Besides, if you’re claiming farm income or trust income, you probably aren’t doing your own taxes anyway.  That said, if there are any glaring omissions, please leave a comment and let me know.

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I found this piece from the Wall Street Journal regarding savings bonds and the SSN(s) that appear on them enlightening. You don’t need the SSN of the recipient of a gift of a savings bond in order to buy the bond. We recently ran into this situation when our son was born a couple of months ago.

One of my wife’s relatives wanted to continue a tradition of giving a savings bond to newborns in the family. But the message about her plans came through another relative who was vague about what was happening. This intermediary relative simply said she wanted to pass on our son’s SSN to a family member. Not knowing who or why, we were (understandably, I believe) reluctant to provide the SSN.

It turns out everything was above board and we got a savings bond in our son’s name the other day, courtesy my wife’s relative. A very nice gesture.

According to the WSJ article, Dept. of Treasury likely won’t reissue the bond if you want to change the SSN that appears on it. When the bond is cashed, the bank cashing it records the SSN of the named bearer and forwards that information on to the IRS so they can get paid, too.

One of the big reasons we didn’t want to disclose our son’s SSN was because he could be the victim of identity theft and we’d likely not know it for years. As I wrote before, stealing a minor’s identity is a particularly insidious form of identity theft. Since, unlike you and me, kids don’t regularly check their credit reports, the damage of an identity theft could be ongoing for years.

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For some reason, I find getting my friends to actually act and get a will to be one of the toughest sells I try to make. Maybe it’s me and I’m just not a terribly persuasive person. People I talk to about this agree that having a will is a great idea and it’s something they should do. Getting them to do it is something else altogether.

Whenever I mention having a will to friends, I also tell them it’s important to have a power of attorney. A power of attorney is a legal document that allows someone to act on your behalf. You can make the powers conferred on this person as broad or narrow as you like.

A power of attorney is not scary, but not having one is. If you cannot act on your own behalf for any reason (commonly, the reason is medical), your bills still need to be paid. You need a trusted person to take care of things if you can’t.

Here are the 4 bad reasons for not having a will and power of attorney.

“I don’t want to focus on death.”

You know what, neither do I, but we’re all going to die. When you do, you need to know your loved ones and your affairs are taken care of. It’s not really that painful an exercise. Plus, once it’s done, you can stop ‘focusing on death’ unless you have a major change to your life (e.g. birth of a child).

“I don’t have much in the way of assets anyway.”

Maybe not, but you have an opinion on how your money is spent before you die. You should also have an opinion on where it goes afterward.

“I don’t have kids. If I die, my wealth will all go to my spouse by default.”

Absolutely incorrect in many cases. In many states, if you’re survived by a spouse and your parent(s), they share your property equally. You may want your spouse to get everything, but that might not be the case. Note that any assets that are Joint Tenant With Right of Survivorship (JTWRS) do automatically go to the other person. But I’ll bet you have plenty of assets not in that category.

“It’s too expensive.”

It’s really not. A basic will drawn up by an attorney (not a piece of software) might cost between $200-$300. I don’t think that’s too expensive to make sure your wishes are fulfilled when you die.

So getting a will is not hard, not expensive, yet it’s valuable both practically and for piece of mind. You really have no good excuse for not having one. As for us, we have to get ours updated since we have a new child. I’m waiting for the SSN to come in the mail before we go, though.

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A couple of weeks ago, I requested my entire personal file from Choicepoint. Well, I got the packet in the mail and it’s interesting.

Choicepoint

You may have heard of Choicepoint. As in, “Choicepoint sells personal data of 145,000 people.” Yeah, that Choicepoint.

In case you haven’t, Choicepoint is a company that’s in the information business. They’re this huge data warehouse that collects, packages, and resells information on just about every American (see chart of Choicepoint’s sources of revenue at the end of this post). If you’ve ever been insured, rented an apartment, bought a house, applied for a credit card, been convicted of a crime, or held a job, Choicepoint has a file on you.

I can buy your file from them right now. And it’s all perfectly legal.

Getting your file

So I was reading a book called No Place to Hide (affiliate link). That’s how I learned about Choicepoint and its sister companies. There are lots of these data warehouses, but Choicepoint is the monster of the industry.

Because of the Fair and Accurate Credit Transactions Act (FACT), consumers can get a copy of their file from information agencies once every twelve months. Most people know this through getting their credit report from the three bureaus. (If you don’t know about doing so, go here.) The law also applies to these lesser-known reports.

Anyone can fill out a form, provide proof of identity, and get their complete report.

When you request your file, you get back ten different reports. Four of them are insurance-related, several are housing-related, and there are a couple of others.

My file

What I learned from my file was pretty interesting, somewhat alarming, and kind of made me mad.

It was interesting to see all the connections they had for me. They had all my insurance information including claims and coverage (this was one that’s called a CLUE report). There was also a surprisingly detailed history of my residences.

One eye-opening and alarming report showed where and when my Social Security number was issued. It also listed my SSN with the last four X’d out. This was alarming because what’s a common identity verification tool for banks and others? Yeah, the last four digits of your SSN. It also listed my date of birth without the day of the month. Getting a certified copy of your birth certificate would be pretty easy given this information.

The public records search that had this wording:

“Just because a record from someone else appears does not necessarily mean that there is an inaccuracy or fraudulent activity. Some records may appear because another person has lived at the same address and shares the same last name. It is possible that you will receive public record information that matches your name and state, but is not about you.”

Oh. Well. Thanks for your concern, Choicepoint. I couldn’t believe the flippant attitude this statement conveys. It’s possible someone else’s (possibly negative) information could appear on my report, listed as me, but that’s no problem.

It might be no problem for Choicepoint, but can you imagine trying to explain to a potential employer that that judgment against you isn’t really you? That’s if you even got the chance to explain, which is unlikely.

And “Just because a record from someone else appears does not necessarily mean that there is an inaccuracy…” Really? What would count as an inaccuracy?

Having said all that, my file was actually completely accurate (if alarmingly detailed). So I have that going for me…which is nice.

(click to enlarge image - image courtesy Choicepoint)

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New babies get people thinking in a lot of different ways. Some anticipate with nervous excitement; some with flat-out fear, some anticipate the arrival of their baby with utter exuberance. Personal finance issues probably aren’t among the first thoughts.

Since we’ve gone through this, I can honestly give some personal advice. Some of these things we learned the hard way. Some we actually did right. It’s always helpful to learn from someone else’s mistakes, so if you’re in the market for a new person, have a look.

Pre-baby

• Check your medical insurance. Just polling friends, it’s amazing the range of coverage different plans provide. For our daughter’s birth by planned C-section, insurance paid for everything. Well, there was the $10 charge to have a phone in the room (Huh?). Look for what’s covered prenatal, for the actual delivery, and for post-delivery well baby visits - copays, deductibles, the usual stuff.

• Visit hospitals. The nearest hospital isn’t necessarily the one where you want to have a baby. Do some research and go on tours.

• Buy life insurance. You’ll now have a true dependent - somebody who must count on you for everything. Everything costs money these days. Even if you’re not around, it still needs to get paid for.

• Check your benefits. If you’re adopting, lots of bigger companies (and some small ones) offer adoption assistance, sometimes a significant amount of money. If you’re doing it the old fashioned way, check with HR about FSAs, paid/unpaid time off, and short term disability.

• Tell your boss. This is a sensitive subject for women, and I’m not a woman so I’ll just say at some point, your boss needs to know what’s going on. For me, I needed to tell my boss and coworkers because of unpaid time off to help after the birth.

• Start saving for college. Think I’m joking? I’m not. The cost of college has been far exceeding inflation. We started saving only a few months into the pregnancy in a 529 plan. You name yourself as the beneficiary and when the little bundle gets a name, it’s a simple paperwork change.

• Start researching child care, if appropriate. If you both plan on going back to work, you need to have arrangements for baby care. Daycare slots for newborns/infants are notoriously difficult to find.

• Save money. Lots of it. If this is your first, you have no idea how many diapers you’ll go through. No idea.

• Buy baby stuff. I’m not going to lie - you’ll want to buy baby stuff. Try to restraint yourself, though. I’m chagrined to say we have one child and, at last count, five strollers. We have a stroller for all occasions. Honestly, though, we didn’t know what to look for in a stroller. You’ll find out, too.

Post-baby

• Tell the medical insurance company. You’ll want to put your new baby on your plan right away. Depending on the plan, you’ll have a certain amount of time to do this, but don’t put it off. The doctor visits for shots start at one month.

• Get (or update) a will. Even if you have little in the way of assets, you’ll want to do this. That life insurance you bought needs a place to go if you die.

• Decide on a guardian. Should you and your spouse both die, you need to have someone set up to raise your child in your place. Oh, yeah, and don’t forget to tell the person you select. Very important.

• Get a Social Security Card. A lot of hospitals will start this process automatically and/or give you the paperwork to take home. Just make sure it gets done. The turn-around on the actual card was surprisingly fast for us, by the way.

• Finalize child care.

• If returning to work, make contact and arrange for return. Your boss will need to know your plans as far as date of return, new hours, limited schedule, or other restrictions. Some workplaces are definitely not parent friendly. Those places suck. If your boss is not helpful on this now, you’ll likely run into issues later when you have to stay home with a sick child or leave early because their school is closing early because of snow.

Oh, yeah, enjoy your new baby. That’s important, too.

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