balancing budgets and budgeting styles

I've been keeping careful track of what I spend money on since about 2002. I've got an Excel spreadsheet format all worked out to my liking, and I try to enter receipts weekly (sometimes more often, oftentimes less). I think I miss some small cash expenses, but I generally have a very good idea of how I (now we) spend money.

For most of my relationship with Jon, I have been the money manager. We've been a 'financial unit' since about 2005. We're both responsible with money, but over the years we've learned that we have different strategies for managing it. Jon has little interest in my money management system, but developed a different system for our several months of travel abroad. We took all of our money allocated for our travel, divided it by the number of days we expected to travel, and came up with an average daily budget. Every day we entered our expenses and income and if we overspent, we watched our daily allowance go down. This system was great for knowing exactly how much money we had to work with.

This week we he and I have had some discussions about money. Our money is pretty complicated, and I'm the one keeping track of it closely. Jon is trying to save for a new computer and we're trying to save for our wedding in April. Both of us have to set aside money for taxes because it isn't taken out of our paychecks. We're making ends meet, but we're not able to save much once the bills are paid. We had to find a way for both of us to pay attention to our spending habits.

My approach would be to make an allowance for each major expense category (food in particular) and stick to it. Jon doesn't like this approach as much, so we've just re-implemented Jon's daily average system to be sure that we meet our spending and saving goals from paycheck to paycheck. Setting aside for rent and other known expenses, we've got $15.41 per day until December 2!

What's your system?

Paying (and reducing) taxes on grad student stipends

Note: this post is based solely in personal experience. Feel free to offer corrections if you know that something is wrong or misleading, and by all means consult someone actually trained to do your taxes if your situation warrants!

This is intended to be a guide for those of us getting paid semi-off-the-record (i.e. without a W-2) by our grad institutions. To use my own example: my school reports income to the IRS, and deducts taxes, only for semesters I am teaching. But I'm also lucky enough to have some fellowship years, where I don't do any "work" for the school directly, just research and write. Unfortunately, the IRS says I still have to pay taxes on this income. Same goes for any outside fellowship I win*.

How does this work? Here's what I did this year:

1. At the end of January, my school sent me a W-2 for the semesters I had taught. You probably got one too. Hang onto that.

2. Around February, my school sent me a letter stating that it had paid me $X,000 in fellowship money. It took care to disclaim any and all responsibility for paying taxes on this money -- but don't be fooled, that just means you have to pay the taxes. Even if your school doesn't send you this letter.

3. Here's where you can get sly, though: you can deduct "mandatory educational expenses" (that's the rough phrasing) from this amount before you include it on your tax return. This can include anything you can justify as necessary to your academic career. Books and school supplies, yes, but also computers/computer repairs; conference fees and travel you had to pay for out of pocket; membership fees for professional organizations; the amount of electricity you estimate you spent at home doing academic work; commuting costs to and from campus; special dissertation paper; job search mailing and copying expenses... etc. etc. BUT in case of an audit, you'll need receipts or documentation for these expenses, so it's better not to just make up a number. Subtract this from your fellowship amount to get a number like $Y,000.

4. Now find the line that says "Wages" on your 1040. This will be either line 1 (for those filing 1040-EZ) or line 7 (for those filing 1040A or 1040**). On the dotted line between "Wages" and the box at the right of the page, put SCH $Y,000. (SCH stands for "school," as you can probably guess.)

5. Now add the SCH amount to your W-2 income, and the income from any other W-2s you have. Put that total amount in the box at the right. Remember to attach your W-2(s) to your return, if you're not filing electronically.

6. Now you're done for this year. But wait! Will you be earning fellowship or other unreported income next year? You might have to pay estimated tax for next year, or you might want to spread out your tax payments so you can avoid paying them in one huge lump like I did. I am too lazy to calculate the exact value of my own estimated tax (talk about an oxymoron), but I did estimate, based on this year's taxes, around how much I'd end up paying next year, and divided it in 4 for my quarterly payment.

That's it! Drink a beer! And I'll do my best to answer any questions.

*While I know some people who take their chances and don't report this income, I've heard enough stories of audits [n=1] to make me too nervous not to.
**Questions about this? Here's a seemingly adequate place to start. I'm unfortunately stuck with the 1040 because of self-employment income from singing, but most people will at least be able to simplify to the 1040A, if not the 1040-EZ (even better!).