Okay, the new year is well underway, and it may be time for some financial housekeeping. In this post, we will discuss some issues that have been previously covered in prior posts, but I feel that they are important so please indulge me let us look at some important issues. We will examine taxes, current and future, debt reduction and budgeting. All of these issues can lead to either financial peace or ruin. What direction you go is up to you so let us begin with current year taxes.
As you are aware, taxes are due Tuesday, April 17, 2018, for the 2017 tax year. Now I am hoping you have begun preparing to file your tax return as the deadline will be here before we know it. It is important that you gather and have all of your supporting documents so you can file or have someone prepare and file on your behalf. That means all of your W-2’s, 1099’s and receipts all in one place and easy to access and understand. This may mean investing some of your time in order to get these ready for filing, but it will indeed make things easier when you do decide to file. While the deadline is about a month and a half away if possible, please do not wait until the last minute to file. It leaves you open to mistakes and could possibly open your identity up to potential theft from people who file fake tax returns.
Now future taxes were covered in a post two weeks ago. The reason I am visiting this topic again in a refresher is I think this is extremely important to grasp and understand. While not getting political in nature it is important to understand the new tax law that was enacted this year. Yes, most people did see a modest increase in their take-home pay in the form of slightly lower federal taxes. Now, while your 2018 taxes will be a little lower and your take-home pay is higher, the withholdings may not be entirely accurate. As an example, I projected my 2018 taxes two weeks ago, and they were withholding about $200 to little from my check. So I adjusted my W-4 from Married with two Exemptions to Married electing a Single Exemption. And estimating my 2018 taxes two weeks later I will now be getting a small refund instead of owing about $2,000. And make yourself familiar with the changes in the standard deduction and the elimination of the personal exemptions, though the extra $1,000 in child tax credits does help offset the loss of the exemptions. If you would like to run an estimate on your 2018 taxes, I found an excellent spreadsheet that you can use. To get it, please go to http://bit.ly/2orTOnz.
Okay, we have cover current, and future taxes so let us now examine a part of most people’s finances, debt. While almost everyone has debt in some form or another too much can be bad, and not all debt is created the same. Allow me to explain if you will. A mortgage and small amounts of student loans would be considered as a good form of debt as the mortgage will have a relatively low-interest rate and if you plan on living somewhere for an extended period building equity in an appreciating asset such as a house is a positive thing when compared to simply paying rent. Student loans also generally have a relatively low-interest rate, and by furthering your education, you, in theory, will increase your earning potential. But too much student loan debt can be no better than some forms of bad debts so keep them manageable if you can.
So now that you know that not all debt is indeed bad let us examine two of the more common types of debt that should be avoided. One is automobile loans as they are a depreciating asset, unlike a home mortgage. Yes, automobile loans can and usually do have relatively low-interest rates, but the car or truck loses value immediately upon its purchase. So if you do finance an automobile, try to finance as little as possible and always get GAP insurance on the automobile loan which will pay the difference between what is owed and what the car’s value is stated at the time of an accident if you have one. The insurance is relatively inexpensive and well worth it in the event something were to total the value of the automobile you financed. The second type of bad debt is pretty much universally regarded as a negative, and that is credit card debt. These debts are extremely harmful due to the high-interest rates that they charge you on any balance that you may carry on the card. It is not uncommon to see interest rates for low-interest cards of 8% all the way up to high-interest cards charging 24% or more annually. Now I am not saying that credit cards are bad to have and use because I am not saying that at all. Credit cards do have their advantages such as buyer protection, theft protection and it is not always wise to use debit cards because of the protection credit cards have. But the key is to pay the balance owed in full every month so you will avoid the high-interest finance fees that credit card companies rely on people having. If you spend within your means and do indeed pay the bill off in its entirety, there is no reason why you cannot use a credit card.
Now the key or component that wraps all of this together is the use of a successful budget of some type. I know what you are thinking, I do not need to do a budget. Well, that is utter nonsense, and this is why. If you do not know how much money you make in a given period of time and you do not know where you are spending your money that means you may not be able to save for large purchases or retirement. In order to plan for these things, you must know where your hard earned money is going. A budget can be extremely simple, or you can make it complex in nature, but the main point is to have something that works for you and is something you can and will maintain.
If you would like my free debt reduction and budget spreadsheet simple sign up for my periodic emails at http://bit.ly/kgmeyer, but if you want something a little better allow me to explain an affiliate of mine. I found a group of Excel-based spreadsheets many years ago that I can 100% swear by in their ease of use and the benefit that they provide. The company is Simple Planning, and they offer individual spreadsheets as well as two options for their entire collection. Personally, I recommend either the entire group of eight spreadsheets for a low price of $39.95. But even better for $59.95 their premium package which includes the eight spreadsheets plus online storage and annual updates at no additional charges. If you are interested in a great set of spreadsheets for very reasonable prices, please visit http://bit.ly/2q7dbjS. But regardless of your budget preference do sign up for my email updates and get the debt reduction tool to use in conjunction with whatever budget tool you decide to use.
If you have any questions or need any additional information, please feel free to contact me directly or leave a comment here.
