Did you know that your taxes are an excellent “snapshot” of your annual spending and cash flow? You can leverage the information you gain from reviewing your finances on an annual basis to evaluate your spending habits, assess your goals, and decide what needs to change before next filing season in order to stay on track or to use your money in a way that gives you fulfillment.
Short on time? No problem! Here’s a quick overview of this episode:
- 2:00 What to do to reduce your 2021 tax reliability in 2022
- 5:00 Determining where your money is going based on your take-home income
- 5:50 The majority of people underestimate their spending
- 6:44 Using the 2021 tax year to understand your cash flow and plan ahead
- 7:15 Drilling down your cash flow into loose categories to understand your spending habits and set goals
- 9:00 Deciding how far you want to “drill into” your spending to understand your budget
- 10:15 Gaining awareness of how much money you’re funneling towards your goals so that you can make proactive decisions about your finances
At AVID Planning, we believe that auditing your spending doesn't have to come with a sense of shame or embarrassment. If you ever feel overwhelmed by your spending, or like you're unsure where your money is going, look at it as an opportunity. Tax season gives you a chance to understand:
1. How much money you're taking home every month (or year).
2. How much money you're funneling towards pre-tax savings accounts (like retirement or your HSA).
3. Whether or not you're withholding enough taxes from your paycheck to ensure you don't have a massive tax bill next filing season.
A general rule of thumb is that your net worth is equal to how much money you're spending. Because that's the total amount of cash "flowing" into your life, it must be going somewhere! Take time to evaluate whether you were funneling money towards your goals (like saving or debt repayment), if it was going towards living expenses (like your mortgage payment, utilities, or groceries), or if the majority of it was spent on your lifestyle.
If the latter is true, that's okay! Again, this is an opportunity for you to look at what, exactly, your income is funding, and whether you feel good about that. If, for some reason, you look at your spending from last year and determine you don't feel good about how much you spend in a certain category (eating out, shopping online, etc.) now is the chance to mindfully make decisions moving forward.
Remember: tax season doesn't just have to be focused on filing. You can take this time to dig into your annual finances and do a mini-audit to determine whether or not you're making progress towards your goals.
Need help? We're here to guide you! Schedule a call with us today by clicking here: https://avidplanning.com/contact