Anyway. Life is trudging onward here in my little world. The latest milestone I've achieved is getting my taxes finally finished up yesterday. Signed, sealed, delivered. And with a few days to spare, no less, which is kind of novel for me in my doing-my-own-taxes history, I think. Actually, this year marks a turning point for me for several reasons.
One, the vast majority of my income goes unreported during the year, so I'm left to my own devices to tally things up and make reports. Even when I was living off consulting, it was all corporate and official, so I had 1099s and stuff like that to keep me in line, plus I had outside help getting the taxes together. But nowadays, most of what I do is all cash-based, and the only things keeping me on the straight and narrow are my conscience and my propensity for an anal level of record-keeping. I had to fill out a few extra worksheets and add an unexpected form or two to the mix, but for the most part I found the experience satisfying. Basically what it comes down to is that I prefer my interactions with the government to be based more on my own personal responsibility than not. I can dig it.
Two, having put tax year 2007 behind me, I now have to start addressing 2008. In general, when you end up owing a lot of tax at tax time, you're supposed to have been paying it quarterly throughout the year. In 2007, I was allowed to let this slide basically because I was broke in 2006 and didn't have to pay any taxes. Now that I'm back on the radar, if I don't keep up with my taxes quarterly during 2008, they're going to penalize the bejeezus out of me next April, so starting this year, I have to make quarterly payments. This involves attempting to project what my income is expected to be this year, which is kind of a weird place to be in.
I balk at making predictions of any kind, really, but making predictions where the outcome can actually have an adverse financial impact on me kind of gives me the willies. (Heh. Says the gambler. ;) ) If I had more normal, stable kinds of income, even if unreported, I suppose I wouldn't mind it so much. But the nature of my income is pretty unstable and sometimes erratic, so basically I'm just ending up having to make a SWAG and run with it. That in itself was kind of fun, actually. I had to take what data points I've got at this point and try to find a way to reasonably extrapolate what I expect to come. The results were somewhat surprising, actually, so I hope I did all right. Whether I did or not, though...well, I guess it'll all shake out next tax time, regardless. I'm also fairly sure I can make adjustments to my projection each quarter, so that'll help as time goes on.
Another effect that this tax exercise had on me was that I had to take a detailed stare at my finances for a while, and I have to say, I think things are looking all right. Sometime in the middle of last year, when I realized that I was going to be cockpunched by taxes at year-end, I started squirreling away money so I wouldn't get caught with my pants down when it came time to pay my dues. My effots were not in vain, so my taxes didn't present a problem to my current everyday cash flow, which is good. In addition, 2008 is so far looking like it's being similarly covered without interrupting my day-to-day funds, which is also good. Even better, poker is (so far) pitching in to help rather than screwing things up. See...2007 was not a good poker year for me. And taking a bath in that department did absolutely nothing for my tax situation, because of the retarded way that the Feds tax gambling. So far this year, though, I'm doing all right, and not only does that mean another source of income, it also means I'm probably doing the right thing by not taking the option of having my employer withhold tax for me on my tips.
So it goes like this. Tax refunds are, in an overall financial view, a bad thing for you. Refunds are what happen when you have more tax withheld than you were actually responsible to pay, right? So that money should have already been in your pocket rather than the government's. Let's assume you didn't need the money for spending (since you didn't have it anyway). That means you could have taken that money and stuck it somewhere, somewhere interest-bearing, say, and you would be better off at the end of the year than you ended up being. Put another way, when you get a tax refund, you're basically giving the government an interest-free loan using your own money. So following that train of thought, everyone would be better off paying the least amount of tax possible during the year, as long as you can use that tax money to make more money by holding onto it rather than letting the government hold on to it.
Look at it this way: some amount of your paycheck is withheld for tax purposes. Right now, this money goes into a vault somewhere and gathers dust until tax time. If, instead, this money went into an interest-bearing account until tax time, you would benefit. Because most of my income comes in as cash, this is basically what I'm allowed to do -- put my tax money into savings instead of under the (government's) mattress. Pretty good deal. (Yeah...any extra income I manage to garner also gets taxed, but whatever. Half a loaf is still better than none.)
Now...this is where things get a little convoluted in my particular case. So let's see where we are so far. You've got some extra money, but you shouldn't spend it, since it's already earmarked to pay your taxes at the end of the year. You should invest it. Since you ideally don't need the tax money in your pocket anyway, you can just try to find the best deal you can for getting a return on your money in a year or less. The advantage that most people have over me in this situation is that this investment doesn't need to be liquid until tax time. In fact, it shouldn't, really, because you don't want to be spending it. But for the investment I choose, I've got to keep my extra money liquid. Why? Because I invest in myself. :) More specifically, I invest in my poker bankroll.
The thing about a poker bankroll is that it has to be able to be turned into cash basically at a moment's notice. Now...this isn't strictly true, since at any given time, a good portion of it should not be in use. But in the ideal sense, any money in the bankroll that can't be used to play...well...isn't in the bankroll. That's a problem that can basically be solved by accounting, frankly, but you get the idea. Your bankroll pretty much ends up having to be a chunk of cash laying around, and making it that pretty much stops it from being a chunk of cash being invested during your tax year, which was the whole point of this exercise in the beginning.
Here's the thing about poker with a bankroll. It's basically half investment and half job. As an investment, the ROI is sick. It'll bury anything else run-of-the-mill that you can get your hands on. There's a reason for this, though. The money comes as a direct result of you putting in hours at the table. So the profit that comes from a poker investment is solely based on your own personal performance, both in effort and results. That's one fucked up investment! So in that sense it's more like a job. It can be represented as a job that pays you some (varying) hourly rate, but that for which you can completely make up your own schedule. However...even if you are great at this job, you can only do it if you've got a bankroll behind you. If you try it without a bankroll, then what happens is that your boss, Variance, who is disturbingly capricious, will fire your ass at a moment's notice for reasons you will never understand. And that is why your bankroll has to stay more or less liquid. Whatever time it takes to convert your bankroll into playable cash money is time lost -- that's time during which you are unable to put in the effort required to make a return on your money. Your only solace is that, theoretically, this non-liquid asset is out trying to make money on its own, but at this point, you can see why it is no longer part of a poker bankroll. It's just...some other kind of investment.
By the way, just so no one thinks I'm deluding myself, yes, I am aware that this is in no way the smartest way to make use of my tax money. :) One other facet of the poker bankroll as an investment that I haven't mentioned yet is that it is what the kiddies call "high risk." Assume you're a winning player that, over time, turns a profit playing poker. Even when properly bankrolled, at any given time to run the risk of going through a losing streak. If this should happen at a time I need the money back (tax time), then I'm up a creek. The smart investment for tax money is low or no risk. That way, you're guaranteed to have the money when the bill comes due, and then you've got your little profit, also. Imagine instead that you invested the money in a profitable, but highly volatile, stock. Sure, over time, you'll probably make money on your investment. But you've got a deadline. If that stock tanks for the time period in which your taxes are due, then you've got a problem on your hands. So I am basically running that same risk by putting earmarked funds into a volatile investment. Not smart. Not smart at all. But it's way more fun. ;)
Note that this isn't a problem for people with a more normal bankroll situation, in that their bankroll is not made up of funds needed for some other use. This is just something I'm doing to myself. What remains, though, for the normally bankrolled (and for me, to a certain extent), is just how to handle "unused" bankroll money. In pretty much every financial outlook, what you don't want to do with extra money is just have it sitting around doing nothing, which is basically what a bankroll ends up being. What I do is keep most of it in a savings account, where it gathers some pathetic amount of interest. Probably what I'll end up doing (when I have more financial wiggle room, which basically means a bankroll that isn't owed on a deadline), is figuring out some kind of decent low-risk investment that I can turn liquid in a reasonable amount of time. Then I figure out how much bankroll I'd need in liquid form should things go bad over that reasonable amount of time. Anything excess could be invested. For example, let's say I'm thinking about putting money in a 1-month CD. Then I say, hmm, how much of my bankroll could I expect to blow in a month? Say a third. So I can keep a third of my bankroll liquid, and then stick two thirds in a one-month investment. Then I can pretty much keep rolling that one-month investment, and then work out of a "month's worth" of bankroll in cash, knowing that the rest of my bankroll is never more than a month's wait away. Something like that. Anyway, I'm not working anything out at this point. Sometimes it's just nice to think about what I'd do if I had enough money. ;)
In any case, when all is said and done, I like the way things are looking for the time being. In my personal financial life viewed as a business, I'm still deep in the red, in that my liabilites far outway my assets. My primary driving financial goal these days, besides day-to-day survival, is getting out of debt. So while I'm working on that, I cannot assume that I'm...you know...worth anything. ;) On the other hand, though, I'm actually generating positive cash flow for once, which I've found to be immensely comforting. Moreso than I expected, actually. :) The fact that this state of affairs basically balances on the head of a pin doesn't actually seem to get me down, which is encouraging. Investment strategies are all well and good to ponder sometimes, but really it all has to wait until I actually have spare money laying around to do something with. I'm actually digging the tax situation. To me, the extra paperwork and aggravation is worth having my tax money actually be useful to me rather than not. And thinking about bankroll management, especially the "unused" weirdness, has been a pretty neat exercise. Maybe for the first time, I feel motivated to learn more about financial matters. Crazy!