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Everyone Who Does Taxes For The First Time Should Know These

Everyone Who Does Taxes For The First Time Should Know These

Like Voldemort from Harry Potter, the word “taxes” should not be The Thing That Must Not Be Named. We should not live in fear of the 15th of April like it’s some plague or judgment day. True, it may feel intimidating the first time you are forced to sit down and complete your taxes on your own. We’ve all been there and, yes, felt your pain.

However, taxes shouldn’t be the bane of your existence. With some planning and premeditation, doing your taxes should be manageable. After all, however you look at it, you will have to file your taxes every year. So do it right and follow these 10 need to know tips to complete your taxes without hyperventilating.

1. Nobody will remind you to do them.

Throughout the year, you should be saving pay stubs, tax returns, and other files and documentation. Let’s face it, filing taxes is not a one and done deal; it’s an ongoing process. Therefore, the government is not going to send you a little friendly reminder letter in the mail like your dentist does for an upcoming appointment. As soon as you begin to receive W2s from your employer, you should being filing your taxes. Don’t wait until the last minute, unless you want to be sweating bullets.

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2. You need to double check everything.

Okay, the truth is, taxes do take a while in order to be completed properly. It requires focus, retrieval of papers and documentation, and reading the directions carefully. At times, the forms may seem a bit repetitive, but make sure you use the examples and directions to help you complete each section. Also, double check everything, especially your name and your math. This not only saves you from a load of extra paperwork, but it will also help ensure that you don’t get flagged for tax fraud.

3. Have your papers organized before you start.

Find a filing and organization system that works for you. Don’t expect to just bring a heap of papers along with you to sift through and have it done in a half hour. Instead, make sure you are keeping your information organized throughout the year to make filing your taxes a lot less stressful. Try using a hanging filing folder system with labeled tabs of all of your paperwork. Or, invest in a filing cabinet or accordion folder system. Just make sure to be consistent. The IRS suggests keeping your records for seven years before discarding any documentation. With all that paperwork, don’t let your files become an unorganized heap.

4. Save some money to file them early.

Set aside money and file early just in case you may owe a lot of money to the IRS. This way, you won’t be blindsided by owing any unexpected large sums. Also, you can save money and get more on your return by filing any charitable contributions and avoid accrued interest on your taxes. Plus, you’ll receive your refund faster. Just make sure you have enough budgeted for these extra costs and money needed if you choose to seek out an accountant or program to file your taxes for you.

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5. Online tax programs don’t know everything.

It’s great to file online through step-by-step programs like TurboTax or TaxAct. Yet, they don’t always know about your individual tax exceptions and needs. Every person is different and you may have some questions that are beyond what the program can provide for you. Save some money and find an accountant who can help you through your unique tax filing. A tax preparer works specifically for the IRS and will cost between $150-$450, depending on your situation. Or, you can use a retail tax company like H&R Block for quick and easy filing. Just make sure you invest your time into finding one that suits your needs. It will be worth it in the long run.

6. Filing jointly is a little easier.

If you are married, filing jointly is a great way to guarantee the largest standard deduction from the IRS each year. You can also qualify for many taxes credits, including the American Opportunity and Lifetime Learning Credit, and the Earned Tax Income Credit. Plus, you only need to submit your taxes once together.

Ultimately, it’s better to file jointly. According to Turbo Tax, “In 2013, married filing separately taxpayers only receive a standard deduction of $6,100 compared to the $12,200 offered to those who filed jointly.” Therefore, if you are married, look to filing jointly to get the best tax breaks.

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7. File as early as possible if you need financial aid.

If you file early, you have the best potential of receiving the maximum amount of financial aid. The IRS makes this easy to do, because there is a link from the FAFSA form to the IRS, meaning you don’t have to provide your tax information by yourself. Be proactive, invest in your future, and get the most out of your education and your tax money.

8. You can submit corrections if you make a mistake.

Remember that we are only human and “to err is human”. So, you flubbed up a number or missed a step in filing your taxes. Something looks off. Don’t freak out; a 1040X file is your saving grace. It’s important to make your corrections rather than wait for the IRS to find them. A simple mistake typically won’t give you a large penalty, but it can cause accrued interest on the correct amount. Just know that it’s okay if you need to make a change.

9. You can write off student loan interest.

You can get a tax break and deduct $2,500 or the amount of interest you paid on your student loans. It’s considered an adjustment to your income, so you don’t have to itemize all of it.

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See what qualifies as a student loan adjustment and enjoy the fact that all of your money spent on your education is to good use and can help with your tax break.

10. You can credit your refund to next year.

Don’t always think that you have to spend your refund cash on anything right away. Instead, use it as an investment and put your money in a separate account in case you owe money next year when filing taxes. Or, you can place this money in a retirement fund and receive more money off next year’s income tax. The choice is yours, just choose responsibly.

Take a deep breath.

When you invest the time in filing your taxes and prepare all year, you really are investing in yourself and your money. If you want something done well, do it right. If you are still unsure about how to approach taxes, a good bet is to spend the money and seek someone who knows what’s best for you and your interests. Don’t be overwhelmed by the “big” 5-letter word; taxes aren’t that scary, as long as you don’t procrastinate.

Featured photo credit: Tax/401(K) 201 via flickr.com

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Kayla Matthews

Productivity and self-improvement blogger

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Last Updated on August 20, 2019

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. And that’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways on how to set financial goals and then actually meet them with ease.

5 Steps to Set Financial Goals

Though setting financial goals might seem to be a daunting task but if one has the will and clarity of thought, it is rather easy. Try using these steps:

1. Be Clear About the Objectives

Any goal (let alone financial) without a clear objective is nothing more than a pipe dream. And this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore if you are saving today, then you should be crystal clear about what it is for. It could be anything like kid’s education, retirement, marriage, that dream vacation, fancy car etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives, however small they may be, that you foresee in the future and put a value to it.

2. Keep Them Realistic

It’s good to be an optimistic person but being a pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going out of the line will definitely hurt your chances of achieving them.

It’s important that you keep your goals realistic in nature for it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said – “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”. And this quote sums up the best what inflation could do your financial goals.

Therefore account for inflation whenever you are putting a monetary value to a financial objective that is far away in the future.

For example, if one of your financial goal is your son’s college education, which is 15 years hence, then inflation would increase the monetary burden by more than 50% if inflation is mere 3%. So always account for inflation.

4. Short Term vs Long Term

Just like every calorie is not the same, the approach towards achieving every financial goal will not be the same. It is important to bifurcate goals in short term and long term.

As a rule of thumb, any financial goal, which is due in next 3 years should be termed as short term goal. Any longer duration goals are to be classified as long term goals. This bifurcation of goals into short term vs long term will help in choosing the right investment instrument to achieve them.

More on this later when we talk about how to achieve financial goals.

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5. To Each to His Own

The journey of setting financial goals is an individualistic affair i.e. your goals are your own goals and are determined by your want to achieve them. A lot of times we get on the bandwagon of goal setting only to realize later on that it was not meant for us.

It is important that your goals are actually your goals and not inspired by someone else. Take a hard look at this step at all the goals you’ve set for after this step, you will be on the way to achieve them.

By now, you would be ready with your financial goals, now it’s time to go all out and achieve them.

11 Ways to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a 2 step process –

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough; and invest those savings wisely so that they grow over a period of time to help you achieve goals. So let’s get down to ensuring healthy savings.

Ensuring Healthy Savings

Self realization is the best form of realisation and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your monthly expenses. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you would be surprised to see how small expenses add up to a sizeable amount.

Also categorize those expenses into different bucket so that you know which bucket is eating the most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pump up your savings rate.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classical mistake which almost everyone of us do. We pay ourselves last!

Ideally, this should be planned upside down. We should be paying ourselves first and then to the world i.e. we should be taking out the planned saving amount first and then manage all the expenses from the rest.

The best way to actually implement is to put the savings on automatic mode i.e. money flowing automatically into different financial instruments (for example – mutual funds, retirement corpus etc) every month.

Taking the automatic route will make us lose control of our money and hence will compel us to manage in what’s left with us thereby increasing the savings rate.

3. Make a Plan and Vow to Stick with It

Budgeting is the best to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be made.

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Nowadays, several money management apps and wallets can help you do this automatically. It’s easy and who knows, you may just end up doing what people fail to do.

At first, you may not be able to stick to your plans completely but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Rise Again Even If You Fall

Let’s be realistic. It’s not like the world will come to an end if you made one mistake. This isn’t called leniency but discipline.

If you fail to meet your budget for a month, don’t give up the entire effort just like that. Instead, start again.

Remember that flexible plans are the most realistic plans. So go forward and try to follow your financial goals as planned but if for some reason, the plan gets out of hand for you, do not give up on it just yet. This has a lot to do with your psychology rather than any material commitment.

All you have to do is to stay on the road and vow to stay on it, no matter how much you fall down.

5. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make Savings a habit rather than a goal. While it might seem to be counter intuitive to many but there are some deft ways of doing it. For example:

Always eat out (if at all) during weekdays rather than weekends. Usually weekends are expensive. Make it a habit and you would in turn be saving a great deal.

If you are travelling buff, try to travel during off season. Your outlay will be much less.

If you go out for shopping, always look out for coupons and see where can you get the best deal.

So the key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice which will be harder to sustain over a period of time.

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6. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission. And it would be rather easy to lose the grip over your discipline.

Therefore in order to stay the course, it is advisable that you keep yourself surrounded with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

7. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

So if you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

Use this journal to write down all essential points such as your short term, mid term and long term goals, your current sources of income, your regular expenses which you are aware of and any committed expenses which are of recurring nature.

When you have a written commitment on paper, you are going to feel more energised to follow the plan and stick to it. Moreover, it is going to be a lot more easier for you to follow you and track your progress.

At this point, you should be ready with your financial goals and would be doing brilliantly with savings; now it’s time to talk about the big daddy – Investments.

Making Smart Investments

Savings by themselves don’t take anyone too far. However savings when invested wisely can do wonders and we are at that stage where we will talk about making smart investments.

8. Consult a Financial Advisor

Investments doesn’t come naturally to most of us therefore rather than dabbling with it ourselves, it is wise to consult a financial advisor.

Talk to him/her about your financial goals and savings and then seek advice for the best investment instruments to achieve your goals.

9. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about them.

Just like “no one is born a criminal”, no investment instrument is bad or good. It is the application of that instrument that makes all the difference.

Do you remember we talked about bifurcating financial goals in short term and long term?

It is here where that classification will help.

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So as a general rule, for all your short term financial goals, choose an investment instrument that has debt nature for example fixed deposits, debt mutual funds etc. The reason for going for debt instruments is that chances of capital loss is less as compared to equity instruments.

10. Compounding Is the Eighth Wonder

Einstein once remarked about compounding,

Compound Interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.

So make friends with this wonder kid. And sooner you become friends with it, quicker you will reach closer to your financial goals.

Start investing early so that time is on your side to help you bear the fruits of compounding.

11. Measure, Measure, Measure

All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments; taking stock of how our investments are doing.

If there is one single step where everything (so far) can go wrong, it is at this step – Measuring the Progress.

If we don’t measure the progress timely, then we would be shooting in the dark. We wouldn’t know if our saving rate is appropriate or not; whether financial advisor is doing a decent job; whether we are moving closer to our target or not.

Do measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

The Bottom Line

This completes the list of tips for you to set financial goals and actually achieve them with not so great difficulty.

As you can see, all it requires is discipline. But guess that’s the most difficult part!

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Featured photo credit: rawpixel via unsplash.com

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