In this world nothing is certain but death and taxes.
- Benjamin Franklin

In our present society, one might almost think that this famous quote by one of my favorite founding fathers could be reworded to replace “death” with “debt”.  It is staggering how in such a relatively short amount of time, we have managed to rearrange our finances and priorities into a place where our economy relies so heavily on debt that if everyone were to stop using it, our economy would essentially collapse.  Yikes.  Of course that would never happen – there are way too many people and way too many credit cards, but it’s still a frightening reality when you think about it in those terms.

However, if we all were to get on board with the likes of Dave Ramsey (and others) and slowly migrated ourselves out of debt and instead focused on building wealth and giving, our economy would be way stronger than it is now.  Imagine a world where there are no credit cards, no interest payments, no fees & penalties, no foreclosures, no repossessions…  Well, maybe someday.  I am, however, beginning to be able to imagine my own life in those terms.

I’m coming up on a year since starting my Dave Ramsey plan, cut up my credit cards, and began a whole new way of financial living.  Have I missed my credit cards?  Not once.  My starter emergency fund has been more than sufficient to carry me through a few minor unexpected expenses which have come up over the course of the year.  I have made sacrifices, changed habits, and have been the subject of a lot of teasing – not by my friends, but mostly by my coworkers.  It seems that many people believe that the only reason the whole budget-thing works for me is because I’m single with no kids (although I do have a dog and while I’m sure she’s not as costly as a kid, she still isn’t cheap  by any means!)  “It’s totally different when you have a wife and family,” one of my colleagues had said.  I didn’t respond since it was clear he didn’t “get it” and I didn’t want to get into a debate, but what I wanted to point out to him is that solid financial principles and teaching are only solid if they work across the board for everyone, regardless of your marital status or family-size.  I know my fellow debt-free crusaders understand me on this point – there’s quite a few of you out there with blogs that tell of your respective journeys…most of whom, might I add, are married with kids:  Debt Free 2009, My Personal Debt Free Journal, and many of the blogs off of the Snowflake Revolution web site to name a few.  I’m just saying.

Moving right along…

Now that we’re past Christmas and New Years, the next thing that begins to occupy my thoughts is tax season.  Tax time begins rearing its ugly head in January and the insanity usually builds until we hit April 15th.  April 15th also happens to be one of my cousin Aubrynn’s birthday.  Poor kid.  Thankfully she’s still too young to know what a stressful deadline date that is for most people, but hopefully the fact that it’s her birthday will serve to add some joy to that otherwise annoying day.

Anyhow, in general I have not minded tax season because it usually means money in my pocket.  I’ve often been told that I must be doing something wrong if I’m always getting money back after paying thousands into the hands of the IRS all year, but I do my best to estimate out my “real” tax liability for the year and so keep more money in my paychecks while still giving the IRS what I should.

Last year I failed miserably at this and ended up with a $8K+ refund.  Oops.  This year I’ve been dreading doing my taxes because I was CERTAIN I was going to owe.  Big.  Like $4K or so at least which made me nervous…not because I can’t pay it (budgeting works, I’m tellin’ ya!) but because I just would far rather use that money for good (pay off debt) than evil (give it to the IRS).   So why the liability?  Earlier in 2008, I had converted a traditional IRA to a Roth.  What I didn’t do was consider the tax implications of this.  Later I realized that I may have just thrown myself directly into the path of an oncoming tax bill.  Major oops.

In my great journey to become debt free, any extra money I bring in serves to bring me closer to that goal.  The thought of having to use some (or even all) of my bonus check to cover a stupid tax liability absolutely burned me up.  And then to add massive insult to critical injury, the market tanked AFTER the conversion so if I had converted in December, let’s say, my tax liability would have been less than half of that estimated $4K.  Fabulous.

The good news is I think I may have found a way to fix it…

As I began my yearly TurboTax Online interview, I did a little investigating and discovered that my mistake is not without recourse.  I can actually undo this.  It’s called a “recharacterization” and I as long as I submit the paperwork and complete the recharacterization before April 15, it’ll be like the conversion never happened!  30 days after that, if I want to reconvert it, I can but with the much much much lower account value.  Score…although I’m not sure I’ll bother.  This has been such a hassle and the IRA isn’t really worth that much so I might be better off just leaving it alone.

Anyway, so if I do all this and erase my tax liability, this also means that I’ll be getting back at least a couple grand which I can throw back at the debt!  (This is also great because it might help to make up for the decrease in bonus I’ll most likely be looking at for this year).

Oh, and on that note, I should mention that I managed to pay off another credit card yesterday!  This is a HUGE deal for me since it’s the first debt payoff I’ve been able to make happen in 6 months, so I’m pretty excited.  Party on Wayne.  This was my Best Buy card which I had used under a 0% for 2 years interest deal to purchase my fridge & dishwasher.  The 0% interest promotion was good though mid-April and by paying it off now, I saved myself from having to contend with $858 in deferred finance charges!  Exciting stuff…and yes, I probably do need to get out more.

So I’m now down to only 2 credit cards with balances left – one with no interest until August, and the other with 10.99%.  I should have the interest-bearing one paid off easily with the tax refund I’ll now be getting and/or bonus (whichever comes in first).  And who knows, if my bonus is hefty enough, I may even be able to kill off the other one by the end of March leaving me to tackle my car loan next…and, might I add, WAY ahead of schedule!

Part of my excitement in all this is that since I’ve not been able to actually pay anything off in awhile, I am feeling a lot of renewed vigor with all these potential upcoming wins which serve to bring me that much closer to my ultimate goals…and will give me more flexibility to move as God leads.  I’m still probably looking at another 24 months before I can call Dave Ramsey and scream over the radio, but it’s all about those baby steps!

2009 looks to be off to a running start…and away we go!