Post Tax Season Review

I for one am really glad tax season is over!  I love it when it starts, and I love it when it’s done.  It would be so easy to start thinking about summer and what fun adventures we want to go on this year.  But let’s take a few minutes to think about what we learned from our tax return this year so that we can make next year’s tax return a bit friendlier.

If you ended up owing additional money, or if you are paying more in taxes than you would like, it’s a good idea to consider some tax saving strategies.  Now, early in the year, while you still have time to make a difference.  Here are a few ideas that may help to save some of your tax dollars:

If you aren’t putting the maximum amount in your 401K, you should look at increasing your contributions.  It could save you some tax expense, while helping to reach your retirement goals a bit sooner.  If you are eligible to contribute to an IRA, save money for it now and make your deposits through the year instead of trying to come up with the money at the same time that you are paying your tax bill.

Consider donating more.  It’s better to give money to charity than the IRS.  You can also deduct charitable miles, so keep track of those.  Or donate your unwanted household goods.  I usually get a larger tax break on things donated than I would make if I sold them for almost nothing at a garage sale.  Be sure you are donating to a nonprofit organization, and get a receipt.  I always take a picture of my donations so that I am not trying to remember what I donated when I’m preparing our taxes.

If you own your own business, be sure to keep track of all of your business expenditures.  It’s a lot easier to track now than to reconstruct next year.  There are apps you can use if you are on the go often.  If you aren’t sure if an expense is deductible, keep track of it anyway.  Your tax preparer can use it or not accordingly.

Look at putting money into your HSA at work.  This way you pay your medical expenses with tax free money.

If you don’t have health insurance, as of right now there is still a penalty added to your tax return for that.

Keep track of travel expenses and mileage for medical reasons, as well as insurance premiums.  If you are able to deduct medical expenses, these can be used also.

If you live in a state without a state income tax, you can deduct sales tax.  Most people use on a “table” amount based on their income, but if you buy a big ticket item keep track of the sales tax paid on it.

Keep track of unreimbursed work related expenses, such as travel, specialized clothing, equipment, tools, or a home office.

If you plan on using stocks to make a charitable contribution, be sure to donate the stock directly if the stock has increased in value since you purchased it and you can use the market value as your deduction.  If you sell the stock, then donate the cash, you will have to pay tax on the gains.  On the other hand, if the stock has declined in value, sell it first so that you can take the loss on your tax return, then donate the cash.

If you have taken out a loan on your 401K, try to pay back as much as possible before changing jobs.  Otherwise you have to show it as a withdrawal and pay taxes and penalties on it.

Make sure you are taking advantage of all the tax deductions and/or credits you are entitled to.  If you are unsure, contact your tax preparer.  With a little bit of planning we can help ourselves avoid pain next tax season.  Now we can start planning our summer adventures!

 

How Will You Spend Your Tax Refund?

If you are one of the lucky ones, you will be getting a tax refund this year.  Let me rephrase that, it is lucky if you don’t have to pay additional taxes.  But getting a large refund really means that you let the government use your money interest free all year.  So if you do get a large refund every year, you probably need to adjust your withholding so that you can invest that money yourself instead of giving it to the government and then getting it back.

But if you are getting a refund, it can be pretty exciting.  But before you spend it, think really hard about what your best options are for utilizing that money in the best way possible.

If you haven’t accumulated an emergency fund yet, do that first.  This cash is so important to use for the little emergencies that inevitably come up.  Repairing a washing machine or car, or replacing tires, etc.  These types of events can derail a budget if you aren’t prepared for them, causing you to charge something on a credit card again.  And at some point in time you are going to have something break down.

If you are paying off debt, throwing a chunk of money on what you owe all at once can make a big difference in how long it will take you to be financially free.  This also gives you a big emotional boost that helps keep you motivated to stay on your debt reduction track.  If you accumulated debt over the holidays, get rid of it with your refund.  I always advise to pay off your past purchases before considering new ones.  Or use it to reduce the balance of your car loan or mortgage.

If you have your debts paid, put that money into your long term emergency fund.  This is the money that you will live off of if you lose your job or can’t work for an extended time.  Or you can put that money into your retirement fund.  Time is on your side when investing money, so the sooner you put that money in a savings the better.

Although it’s really tempting to take a large sum of money and do something fun with it, take some time to decide what you really should do with it.  Most people don’t usually get a lot of little windfalls like a tax refund, and if you blow it, you’ll regret it later.  If you use it wisely, it can be a blessing that will jump start your debt reduction or retirement savings in a way that can be difficult to do otherwise.  And then go back and change your withholding…

 

Setting Financial Goals

While we’re talking about goals and the new year, let’s discuss financial goals.  This is a subject that is uncomfortable for a lot of people.  It’s a lot easier to just stick our heads in the sand and ignore it all.  But our finances should be planned as much as anything else we do in our life.  Even more so than other goals in my opinion.  Because if we don’t plan our financial adventures, the other adventures in our lives aren’t going to happen.  As the great Zig Ziglar said, “If you aim at nothing, you will hit it every time.”  So let’s put our goals out there early in the year so that we know what we are aiming at.

What do you want your year to look like?  Do you want to be debt free?  Do you want to own your own home?  Do you want to be able to travel?  What do you want retirement to look like?  Do you want to retire early, or do some form of work forever?  Does your vision of retirement cost as much as you are making now, or less?  These are all questions that need to be asked.

Here’s my list of things to consider so that 2017 can be your best financial year so far:

1.  How much debt do you have and how much can you pay it down this year?  This is the most important thing on your list this year.  Start this right away so that you can move to the next item on the list.
   

   Carrying debt is like lugging this ball and chain around.

2. How much extra can you pay on your mortgage?  The sooner you have your house paid off, the better, but make sure to pay off your other debt first.    That way you can take the money you are paying on student loans, credit cards, cars, etc. and put it toward your mortgage too.  Being mortgage free puts a lot of extra cash in your hands every month.
3. How much do you need to have saved for your retirement?  Chris Hogan has a great retirement calculator that will help you see where you’re at and how much more you need to save.  Don’t think that you don’t have to worry about this yet, because everyone over the age of 18 should be thinking about retirement.  Time is money, and the sooner you start saving, the less painful it will be.  On the other hand, it is never too late to start saving either, you will just have to save more aggressively if you start later.   https://www.chrishogan360.com/riq/
4. What adventures do you want to go on this year?  Plan this into your budget so that they are paid for in advance, an adventure isn’t nearly as much fun if you are charging it on a credit card.
5. How about budgeting for Christmas now so that December isn’t so financially draining.
6. If you’ve gotten your budget put together, go through it and recommit to sticking to it.  If you haven’t, read my article on choosing the best budgeting system for you, and get it put together.  Don’t wait any longer.

The new year is a great time to start on a new financial path.  The holidays with all of their added expenses are over.  We’re thinking about fresh starts anyway.

This is for me.  I totally want to adventure in a VW van!

 

You have the whole year ahead of you to save for some of the expenses that you know are coming up.  Make a commitment now to end 2017 better off financially.

 

How to Become a Millionaire (or How to Own Your Adventure)

Who wants to be a millionaire? Or a better question is, who doesn’t?  Do we need to have a million dollars to be happy?  Probably not, although it wouldn’t hurt either.  I knew that this title would catch your attention, but our real goal here is to be adventurers, right?  And trying to go on adventures when we are burdened by debt is kind of like trying to row a drift boat down the river with the anchor down.  You can row your heart out every single month and never make any progress.  And how much more fun would it be to adventure without having to worry about how to pay for it?  But how can you get there from here?  Especially if your “here” feels like a desolate place that barely covers the bills now?  How can you even think of getting to a place of financial freedom if you’re just scraping by paycheck to paycheck?

This isn’t an article about starting a new business, or getting a new job.  This is an article about using the resources you have now.  Once you have your finances under control, you will have the freedom to change jobs or go back to school or start a new business.  But for right now we’re going to concentrate on making your life better the way it is.  This is a story from someone who started out just like other normal Americans. We weren’t given any kind of inheritance, starved (literally) through college, work somewhat normal jobs, and still managed to pay off all our debt, house included, and are now free to choose our adventure almost every day. So when I say I know where you’re coming from, I really do.  In my previous article on living debt free, I talked about some of the reasons that we should live that way.  Now let’s talk about the how.

Sometimes the hardest part of any new plan is knowing how to get started. I don’t consider myself an expert, but I can tell you how we did it, and add to it an Accountant’s perspective.  Most articles you read will tell you that the first step to gaining control over your money is to live by a budget.  I agree, but this isn’t something typically taught in school, so the average person has no idea how to begin.  That’s where we’re going to start today, with the very basics.

When I was teaching Accounting at our local community college, I would have students set up a budget for themself as if they were an actual company.  I would first have them keep track of their expenses for a whole month, and then they would classify these expenses and make up financial statements for themselves.  Inevitably, almost every student would put in their narrative that they were surprised that they spent as much money as they did eating out, or at Starbucks, or on basics.  The point was that they really underestimated what they were spending.  I know that I am always surprised at how much money seems to just “seep” out, without my knowing exactly where it is going.  And it is surprising how much it costs for groceries, or kid’s activities, or fuel.  But the only way to really see that is by tracking your expenses.

What I want you to do for a full month is to track every dime you spend, whether it be for groceries, clothing, housing, insurance, utilities, or even the quick trip to the convenience store on your way to work. Every. Single. Dime.  At the end of the month you will have a better idea of what it costs for you to live, along with being able to see where you might be able to cut back a bit.  Once you are armed with that information you will be ready to construct a realistic, livable budget.

While you are tracking those expenses, there are a few websites to visit that give tips on budgeting, especially budgeting for different stages of life, because honestly a college student has different goals than a family, or a retired couple. There are sites that will give you sample budgets, and there are apps that let you enter your budget then track your spending to make sure you are spending within your budget.  Look around; see what format fits your lifestyle, what feels comfortable.  If you have any questions you can post them in the comments below, or DM me.  And remember what your motivation is.  We want to be free from financial burdens, be able to go and do what we want, when we want.  We want to be free to live our own adventures.  I want you to own your adventure, in the sense that you can choose your lifestyle without having a big heavy credit card balance dragging you back.  The time to do it is now!

Budgeting Helps:

www.mint.com  For info on setting up a budget, paying bills, and more.  Also offers an app.

www.everydollar.com  Budgeting tools, tracks spending, also has an app.

www.feedthepig.org  Tips on saving, budgeting, and investing.  Lots of different articles that pertain to different stages of life.

Microsoft Excel also has several different budgeting templates

 

Why Live Debt Free?

Why live debt free? We live in a society that makes it easy to have just about anything we want through the use of credit.  We also live in a time of instant gratification.  We can have what we want now, if we only sign on the dotted line.  Worry about the payments later.  So why should we avoid doing this, if we can drive the cool car, have the bigger house, or wear the nice clothing NOW?

Because what seems like a great idea in the moment can come back and haunt us later. Emotional financial decisions almost always come back to bite us in a big way.  There is also a lack of satisfaction with something that we don’t have to work for.  If we have to wait and work for something, it seems to be a bigger deal when we finally get it.  And by the time we have saved for something, we are pretty sure we still want it, while impulse buys often lead to buyer’s remorse.

The bigger part of this though is what debt does to our lives and our marriages. The American Bar Association has stated that almost 89% of divorces can be attributed to financial problems.  The weight of debt on a marriage can’t be underestimated.  Add to this the fact that many of your choices are taken away from you if you owe money.  Are you stuck in a dead end job because you have payments to make?  Are you paying for your vacation long after you’ve returned home?  Can you not sell your home because its value has dropped and you owe more than you can sell it for?

Do you want to break this cycle? I would like to walk you through the steps we went through to become debt free.  And the freedom that came into our lives when we owed no one and owned our home.  We were able to fully fund our retirement.  We were able to fund our children’s education (within reason, we’ll talk about that subject later).  We are able to travel where we want, when we want, and pay cash.  We don’t fight about money.  And we don’t sweat it if there is a downturn in employment, because all we have to do is pay utilities and property taxes.  My family will always have a home to live in.  And I have had the freedom to work from home as I please.  And we are able to go on adventures without worrying about how to pay for them.  So are you ready to join me on the road to becoming debt free?