Category: General

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

We hear a lot about net worth, but what exactly does net worth mean and why does it matter? Here, let’s learn more about what your net worth is, how to calculate it and the role it plays in your investment strategy and finances. 

What Does “Net Worth” Mean?

Net worth refers to all of your assets minus liabilities, or what you own minus what you owe. For example, if your house is worth $1,000,000 and you have a $500,000 mortgage, you own $500,000 in equity. 

How do you Calculate Net Worth?

To calculate your net worth, first, take an inventory of everything you own. Net worth generally includes cash, investments, property, vehicles and anything else you own. To get an accurate estimate for depreciating assets (such as cars), you may need to research how much they are currently worth. Remember, your net worth can include assets you are paying off (such as a home) because you will subtract what you owe. 

Here are some things you should include when calculating your net worth (although this list isn’t exhaustive):

Cash

• Checking accounts
• Savings accounts
• CDs (certificates of deposit)
• Other cash

Investments

• Stocks
• Bonds
• Mutual Funds
• Securities
• Treasury bills
• Bullion (silver, gold, etc.)
• Other investments

Property

• Real estate (market value)
• Investment properties
• Vehicles
• Jewelry, art and collectibles
• Other property

Retirement

• Retirement accounts (IRA, 401(K), pension plans, etc.)
• Social security
• Other retirement assets

Once you have an inventory of everything you own, subtract what you owe. Here are some examples of liabilities:

• Auto loans
• Mortgages
• Credit card debt
• Consumer loans
• Student loans
• Unpaid taxes

After subtracting your liabilities from your assets, you will have your net worth. 

Net Worth and Your Financial Health

A lot of people talk about net worth as a part of your financial health and while it’s an important part, it’s only one part of your overall financial picture. There are many caveats and considerations with net worth. 

For example, net worth doesn’t include your annual income, so someone with a high annual income but with higher expenses could have a lower net worth than someone with a lower annual income that invests in appreciating assets. Those focused on growing their net worth may consider investing in appreciating assets and lowering their debt and liabilities. 

In addition, net worth may have implications on your taxes. Your tax bracket may be determined by your annual income, but those brackets don’t necessarily include net worth.¹ So if you are a high-income earner, and have a high debt-to-income ratio, and are in one of the highest marginal rate tax brackets, you may accumulate net worth much lower than someone who makes less money annually, but has less debt, more appreciating assets and is in a lower tax bracket. 

When working with a financial advisor, they may consider your net worth, but they may also consider your lifestyle and what is impacting whether or not you are accumulating wealth. Rather than look at net worth, many advisors instead look at investable assets, which is the amount of money you have ready to invest. Net worth can be tied up in property or other investments and may not be liquid enough to invest. 

Understanding your financial health is important and net worth is just one component.

1. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

When we initially sat down to record this episode, we had planned to do a 2021 market overview.

We quickly realized that crunching numbers and showing market ups and downs after they’ve already happened isn’t necessarily the most helpful for investors who are experiencing market fluctuations in real-time.

The truth is that the market has been volatile in the past few weeks, and some investors are worried.

In today’s AVID Chat, we want to go over what’s happening in the market right now, why “hot pick” investments (like cryptocurrency) have impacted investor expectations of market performance, and how to navigate volatile markets without damaging your long-term strategy.

Want to dig in, but short on time? Check out our timestamp below to skip to what you want to hear:

2:00 What’s happening in the market right now?

3:33 What are reasonable long term expectations for your investments?

6:00 Navigating market fluctuations

7:50 Hindsight is 20/20 – you just don’t know what’s causing fluctuations when you’re in the middle of it.

9:00 How can we avoid dismay and blowing up our investment portfolio?

12:15 Put rules in place to rebalance and shift your strategy as the market moves

Throughout the global pandemic, markets have experienced their fair share of ups and downs. Additionally, with new investment opportunities cropping up constantly (like cryptocurrency), investors are experiencing much higher rates of return in some cases. While this sort of fluctuation may feel unprecedented, the truth is that global markets have seen this type of roller coaster before.

When we look back at things like the .com boom, it’s easy to point a finger at exactly what caused dramatic market volatility in the past. Right now things feel “new” because it’s impossible to know, when you’re in the moment, what exact factors are contributing to market volatility. This unknown can cause investors to make rapid decisions about their investments that may lead to problems with their long term retirement and savings strategy in the future.

Unless you’re an investor who has experienced a bear market that stretches on for 12+ months, it’s tough to know how you’ll react when faced with sustained market volatility. This is why it’s important to have a plan in place long before you’re in a high-stress moment when the market is down, and you’re considering changing your investment strategy and selling.

Want help navigating your portfolio? Need a sounding board when it comes to managing your investments? We’re here for you. Reach out to us anytime by clicking here: https://avidplanning.com/contact

According to the US Department of Education, the total amount owed in federal student loans was $1.37 trillion in 2017, and education costs continue to rise.¹ Many people pursuing a college education may find themselves taking out student loans and may also wonder if they should refinance their student loans to save money on interest.

Here, let’s look at what refinancing student loans means, how you can qualify, and how you can decide if this is a good financial strategy for your situation.

What Is Student Loan Refinancing?

Student loan refinancing is a strategy that involves swapping your current student loans with a new loan with a potentially lower interest rate. You don’t get rid of any debt by refinancing, but you have the potential to save money on interest if you qualify for a lower interest rate. In some situations, this could save you thousands of dollars when repaying your loans.

Student loan refinancing is offered through a number of private companies, and they offer both fixed and variable interest rates. Fixed interest rates mean that when you refinance, your interest rate is determined for the length of the loan. Variable interest rates can fluctuate throughout the life of your loan, and they depend on a number of factors. Each lender can give you more information about their specific fixed and variable interest rates.

How Do You Qualify for Student Loan Refinancing?

When looking to refinance your student loans, there are a few qualifications to consider to determine whether or not it makes sense for your situation.

First, you generally need to wait until after you finish school to refinance your student loans.

Also, your new interest rate will depend on your credit, so first making sure that your credit score is solid will not only help your overall financial health, but it may also help you qualify for a lower interest rate. If you don’t have a longstanding credit history, you may need to have a cosigner to refinance your student loans.

Lenders will also consider both your income, and your debt-to-income ratio, or DTI ratio. Income refers to how much money you are earning and lenders like to see that you have enough income to comfortably repay your loans. Your DTI ratio refers to how much debt you have compared to your income. The higher your DTI, the harder it may be to qualify for a refinance. 

Lenders may also consider your total student loan balance. This will depend on each lender, but some have both a minimum and maximum loan balance that they’re willing to refinance. 

Now, let’s look at when refinancing your student loans makes sense for certain situations.

Lenders will also consider both your income and your debt-to-income (DTI) ratio. Income refers to how much money you are earning, and lenders like to see that you have enough income to comfortably repay your loans. Your DTI ratio is how much debt you have compared to your income. The higher your DTI, the harder it may be to qualify for a refinance.

Lenders may also consider your total student loan balance. This will depend on each lender, but some have both a minimum and maximum loan balance that they’re willing to refinance. 

Now, let’s look at when refinancing your student loans makes sense for certain situations.

Should You Refinance Your Student Loans?

The question of whether you should refinance your student loans depends on your unique financial situation, but there are some scenarios when refinancing makes more sense than others.

First, we have to assume that you qualify for a refinance. Based on the criteria listed above, you may or may not qualify, and that will help you determine whether you should refinance your student loans. Also, the most important consideration is whether you will qualify for a lower interest rate than you already have. If not, it’s probably not worth the time and effort of refinancing, because you will only save money if you are paying a lower interest rate. 

Next, you should consider the types of student loans you have. You may want to refinance if you have high-interest private student loans, but if you only have federal loans, refinancing might not make sense. Many federal student loans offer benefits such as Public Service Loan Forgiveness (PSLF), temporary student loan deferment and forbearance, and income-driven repayment plans. Check out the terms and options for your loans because if you refinance federal student loans with a private lender, you may lose some of these benefits.

Lastly, you should consider your overall financial health. If you have other high-interest debt, such as credit card debt, paying off those debts should be your top priority before considering refinancing your student loans. Not only will paying off this debt faster improve your credit score, but it may also save you more on your monthly payments than refinancing lower-interest student loans may.

Each situation is different, so talk to your financial advisor about refinancing your student loans or about other financial tips and tricks to start building a strong financial foundation for your future.

1. https://www.census.gov/library/stories/2021/08/student-debt-weighed-heavily-on-millions-even-before-pandemic.html

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Want to pay off your debt this year? Looking for ways to stay on track as you move toward your goal of being debt-free? We’re covering two commonly used debt payoff strategies in this week’s AVID Chat! 

Check out our timestamp here:

1:00 The Psychological Barrier to Creating a Debt Payoff Plan

2:15 Debt Snowball v Debt Avalanche

4:00 Which Is Right For You?

6:15 Debt Repayment and Cash Flow

8:00 Tactics v Strategy

10:10 The Tricky Part of Debt Repayment 

11:50 Any Strategy Is Better Than No Strategy!

The truth is that paying off your debt is hard. Whether you’re dealing with student loans, credit card debt, or personal loans, there tends to be a psychological barrier to becoming debt-free. This is partly because paying off debt is confusing and, sometimes, overwhelming. If you have multiple different types of debt, you may feel uncertain about which to tackle first. 

“Gamifying” the debt payoff process can help. Two options for creating a debt payoff system include the debt snowball and the debt avalanche. Here’s how the two work, respectively:

Debt Snowball

A debt snowball is a strategy that focuses on paying off your smallest loan first. To start this strategy, make a list of all of your outstanding debts in order from smallest balance to largest. Set everything but your smallest-balance debt so that you’re making the minimum monthly payments. Then, take any “extra” funds you’re planning to funnel towards debt repayment and put them toward your debt that has the smallest balance.

Once that small-balance debt is repaid, you “snowball” the funds you were using to pay that bill off into the next bill.

The idea behind the debt snowball strategy is that you start with a small-balance debt to pay it off quickly. That excitement and feeling of pride that comes when you pay off a bill gives you momentum to continue paying off the next debt you owe. As your payments continue to “snowball” and grow in size, you’re able to knock out your debt obligations quickly and feel accomplished along the way. 

Debt Avalanche

The debt avalanche strategy focuses on paying off your debt with the biggest interest rate first. For this strategy, you organize your list of debt obligations from largest to smallest interest rate – total balance doesn’t matter. You set all of your monthly payments to the minimum except for your bill with the largest interest rate. Once you completely pay that off, you can “avalanche” the funds that were going toward that bill into the next debt obligation on your list. 

The idea behind the debt avalanche strategy is that you are saving more money in the long run by paying off debts with a high-interest rate first. 

Neither of these strategies is “right.” Every person is different, and different methods will motivate them. If you know you need more momentum with your debt repayment, the snowball method may work for you. If you are motivated by saving money, consider the avalanche strategy. 

Whichever option you choose, congratulations on starting your journey to becoming debt-free! If you are looking for an accountability partner, or an expert who can help you stay on track, we’d love to talk. Contact us today by clicking here: https://avidplanning.com/contact

How can you help cover your child’s future college costs? Saving early (and often) may be key for most families. Here are some college savings vehicles to consider.

529 college savings plans. Offered by states and some educational institutions, these plans allow you to save up to $15,000 per year for your child’s college costs without having to file an IRS gift tax return.¹ A married couple can contribute up to $30,000 per year. However, an individual or couple’s annual contribution to a 529 plan cannot exceed the yearly gift tax exclusion set by the IRS. You may be able to front-load a 529 plan with up to $75,000 in initial contributions per plan beneficiary—up to five years of gifts in one year—without triggering gift taxes.

Remember, a 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. State tax treatment of 529 plans is only one factor to consider before committing to a savings plan; the fees and expenses associated with the particular plan should also be considered. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary and may be different from federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.

If your child doesn’t want to go to college, you can change the beneficiary to another child in your family. You can even roll over distributions from a 529 plan into another 529 plan established for the same beneficiary (or another family member) without tax consequences.²

Grandparents can also start a 529 plan or another college savings vehicle.^1,2 In fact, anyone can set up a 529 plan on behalf of anyone. You can even establish one for yourself.

Coverdell ESAs. Single filers with modified adjusted gross incomes (MAGIs) of $95,000 or less and joint filers with MAGIs of $190,000 or less can pour up to $2,000 into these accounts annually.³ If your income is higher than that, phaseouts apply above those MAGI levels. Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses.

Contributions to Coverdell ESAs aren’t tax-deductible, but the accounts enjoy tax-deferred growth, and withdrawals are tax-free, as long as they are used for qualifying education expenses.³ Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30, or taxes and penalties may occur.

UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college, and take the form of a trust. When you put money in the trust, you are making an irrevocable gift to your child.⁴ You manage the trust assets until your child reaches adulthood and the trust terminates. At that point, your child can use the UGMA or UTMA funds to pay for college; however, it should be noted they can also use the money to pay for anything else.

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Imagine your child graduating from college, debt-free. With the right kind of college planning, that’s a possibility. Talk to a financial professional today about these savings methods and others.

1. https://www.savingforcollege.com/article/dont-worry-too-much-about-the-annual-gift-tax-limit/
2. https://www.investopedia.com/terms/1/529plan.asp
3. https://www.irs.gov/pub/irs-pdf/p970.pdf
4. https://www.investopedia.com/terms/u/ugma.asp

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

The age old question goes: Can money buy you happiness?

In AVID Chat #61, we’re going to talk about whether or not money can buy you happiness from a financial planner’s perspective. More importantly, we’re going to go over how we encourage our clients to “master” their money by looking at it as a tool to be leveraged, and how they can set financial goals to achieve long-term contentment. 

Looking for a quick-reference guide to this video? Check out the following time stamps:

0:24 – Can Money Buy You Happiness?

1:37 – Can A Lack of Money Lead to Unhappiness?

2:46 – Is There a Limit?

5:30 – The Mastery Level of Money

6:51 – Using Money as a Tool

8:56 – Building a Cash Flow System

11:00 – Long-Term Contentment and Money

12:33 – Aligning Your Money With Your Values

The truth is that money *can* buy you happiness, but often not in the way people think. Happiness is a short-lived emotion. In other words, the $20 you find in your jeans-pocket coming out of the dryer may make you happy, but that emotion isn’t going to stretch into the coming weeks and months. The feeling people should strive toward, instead, is contentment. Contentment, or fulfillment, are both long term emotions – and your money can help you to achieve them!

Of course, just striving toward more and more money isn’t the way to feel personally fulfilled or content in your life. Instead, you should work to align your finances with your personal goals and values through an expertly crafted cash flow system. 

Referenced: https://youtu.be/gFMs0IIJPH4

Life is complex, and if you find the need to tap into your retirement savings account, you are not alone. In some cases, it may be the right move, or you might not have a choice. According to a recent study, more than half of investors aged 18–34 years have already tapped into their tax-advantaged retirement account.¹

IRA and 401(k) accounts are essentially a deal with the government. In exchange for investing for retirement, the government allows preferential and/or deferred tax treatment. If you have not reached the age of 59 ½ yet, most retirement plan distributions from these accounts are considered “premature” and are subject to an extra 10% early withdrawal tax. 

So what are the exceptions to the 10% early distribution tax? Navigating these rules may help you avoid substantial additional taxation.² 

IRA and 401(k) Early Distribution Penalty Exemptions

The following are considered qualifying exemptions to the 10% early distribution penalty:

• Age. Withdrawals after the age of 59 ½. 
• Death. It may be unfortunate to think about, but any withdrawals after the death of the account holder are not subject to penalty. 
• Disability. Total and permanent disability of the account owner.
• “Substantially Equal Periodic Payments.” Under Rule 72(t), setting up substantially equal periodic payments for your life expectancy (or your designated beneficiary).³ 
• IRS Levy. Do you owe the IRS money? You may be able to cover unpaid taxes using a penalty-free withdrawal. 
• Medical. This includes unreimbursed medical expenses in excess of 10% of your adjusted gross income (AGI).
• Military. Qualifying distributions to military reservists during active duty.
• Rollovers. Must be properly executed within 60 days. 
• Natural Disaster. Some natural disasters receive temporary, event-specific legislation allowing penalty-free withdrawals on a case-by-case basis.⁴

IRA Early Distribution Penalty Exemptions

• Education. These include tuition, books, supplies and other qualified education expenses for you, your spouse, children and even grandchildren.
• First-time homebuyers may withdraw up to $10,000 without penalty.
• Health insurance premiums incurred during a period of unemployment. 

401(k) Early Distribution Penalty Exemptions 

• Separation from Service. If separated from service after age 55 (age 50 for certain qualifying governmental public safety employees).
• Loans. If allowed by the plan, you may qualify for a 401(k) loan. It is not a withdrawal, but the account is treated as collateral.

Do It the Right Way!

Documentation is important. Make sure you’re saving records and talking to the right people, such as your office human resources department and your financial professional. Hardship withdrawals may require proof once it’s time to pay taxes. It’s important to also keep in mind that any dollar taken out is a dollar that won’t grow or be available for your future retirement. 

If you have to dip into your retirement account, don’t despair. You may have more time to recover than you initially think. Steady progress is important, starting with re-filling your emergency fund and paying off any high-interest debt. Once you’re able, you may want to scale back expenses and set up automatic deposits to ensure that the money is going back into your investment account. 

Are you still thinking about making an early withdrawal? Whether your withdrawal falls under the exemption or not, a conversation with a financial professional might be the right place to start.

1. https://www.cnbc.com/2018/08/21/millennials-and-early-401k-withdrawals.html
2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions
3. https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments
4. https://www.irs.gov/retirement-plans/disaster-relief-bill-includes-retirement-plan-distribution-and-loan-options

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Have you ever wondered how a financial planner views cryptocurrency?

To learn more about this type of currency and investment trend, Jack took time to educate himself and experiment with his own portfolio in 2021. 

In an effort to continue providing knowledgeable advice to our clients (and to our followers!), this week’s AVID Chat is a Q&A-style interview with Jack about his experience, and what investors might expect.

Outline:

0:57 Why Jack got involved in cryptocurrency

3:37 How he invested

8:25 Understanding cryptocurrency terminology and different ways to invest

11:28 How does cryptocurrency fluctuation work?

12:59 Jack’s take on cryptocurrency as an investment

14:20 How does Jack recommend investors get started if they’re interested in learning more about cryptocurrency?

19:20 Remember: cryptocurrency is highly speculative, but educating yourself on cryptocurrency may be wise as it becomes more and more common

At AVID Planning, we don’t currently offer cryptocurrency management as a service. However, we are always pushing to make sure our team is knowledgeable about financial questions that our clients have – and it’s not a secret that cryptocurrency has been growing in popularity in recent years.

The truth is, in Jack’s experience, that cryptocurrency is a bit like the wild west. There’s no true regulation, and it can be incredibly risky. However, investors would be wise to continue educating themselves on cryptocurrency, because at this point in time it’s impossible to tell whether or not it will be an increasingly popular investment vehicle for decades to come. 

This doesn’t mean that you have to go out and buy cryptocurrency immediately – far from it! In fact, our team recommends speaking with an advisor who is knowledgeable, and doing your own research from afar before deciding whether or not you want to get involved. 

We also recommend, as is the case with any highly speculative investment, to only invest a negligible percentage of your total portfolio if you choose to take the leap. This means less than 5% of your total investable assets should be used for speculative purposes. Essentially, ensure you’re not investing more than you’re willing to lose, especially if you have other financial goals you’re pursuing, like education savings, debt repayment, or retirement. 

Do you have questions about investing? Is cryptocurrency something you’ve considered, but aren’t sure how speculative investments fit into your portfolio? We’d be happy to speak with you. Click here to reach out: https://avidplanning.com/contact

The tax season is officially here. If you haven’t already, now is the time to get prepared. Whether you meet with a tax professional or prepare your taxes yourself, proper planning helps the processes go more smoothly and may reduce the risk of costly errors. Check out the tips below and prepare to tackle this tax season with confidence.

To-Do #1: Gather All of Your Forms

Beginning in January, you likely started to receive the forms you need to properly complete your tax return. If you are expecting a large refund, you will want to make a list so you don’t forget anything that could affect it. Once you have received your documents, first give them a scan to make sure they are correct and contact the sender if there are any discrepancies. Remember, even a simple misspelling can cause a flag with your tax return. Inspect all of your documents carefully.

Some of the forms you will need to look out for include:

• W-2s from your job
• SSA-1099 for Social Security benefits
• 1099s for additional income, interest, gains and losses
• 1095-A for government marketplace health coverage
• 1098s for reporting interest and tuition payments
• W-2Gs for any gambling winnings
• Schedule K-1s for company ownership

To-Do #2: Round Up Your Receipts

If you have your own business or plan on itemizing your deductions, you will need to record expenses so that you can take advantage of any available write-offs. Gather all the receipts for business expenses, medical expenses and other expenses that can be listed on your Schedule A or Schedule C. Receipts can be physical receipts or bank and credit card statements that show payments for these items. Once gathered, organize them by type, so they are easy to find when you begin filing. 

To-Do #3: Acquire Records of All Charitable Contributions

Throughout the year, you may have made donations to a tax-exempt organization. These donations can provide you with a charitable contribution write off. Traditionally, this could only be done if you choose to itemize your deduction. However, because of the CARES Act, filers who choose a standard deduction may be able eligible to write-off up to $300 in charitable contributions.¹ 

Other donation types will still require an itemized deduction and documentation. Most organizations, from churches to fundraisers, can provide a record of your tax-deductible contributions.

To-Do #4: Create a List of All Personal Information

While you likely know your Social Security number by heart, you will want to jot down the Social Security numbers of any dependents you wish to claim. This way it is easy to access and you can be sure it’s accurate. Also, make a list of addresses for any properties you own as well as the dates on which they were bought or sold.

To-Do #5: Get a Copy of Last Year’s Tax Return

If you are using the same preparer as the previous year, they should have a copy of your tax return. If not, find your old copy and have it ready with your other tax items. Being able to reference your previous return can help you see what you filed last year, so you don’t overlook something this year. 

To-Do #6: Determine How You Will Spend Your Refund 

If you expect to get a refund this year, you might want to take some time to consider what you plan to do with your return once you receive it. You have the option to apply your payment towards your tax bill next year if you believe you will owe. This can be a good idea for those who pay estimated taxes throughout the year as it can often put a chunk towards your first installment.

Alternatively, you can choose to send the money directly to a checking or savings account, or contribute it to an IRA, health savings account or education account. If you plan to split the funds between accounts, you will need to complete a Form 8888.

Don’t let tax preparation leave you feeling overwhelmed. Enjoy less stress and a smoother process by preparing everything you need for filing this tax season.

1. https://www.irs.gov/newsroom/how-the-cares-act-changes-deducting-charitable-contributions

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Outline:

• 0:50 Self review
• 2:13 Why is it important to review previous goals set?
• 3:27 Understand that you may not reach your goal – Kobe Bryant example
• 4:23 New Year’s Resolution trap – you can set a new goal at any time!
• 5:07 Values-based and SMART goals
• 7:33 Do you have meaning and purpose behind your goals?
• 11:51 The purpose is the value!
• 13:46 It’s a cyclical process
• 14:56 Here’s what you can do right now

We are kicking off 2022 with an AVID Chat that focuses on setting resolutions, and how to review your past year.

At AVID, our #1 question to clients and ourselves each year is:

How are we improving?

Looking back on 2021, it’s easy to get caught up in the details of what worked and what didn’t in your financial life and otherwise. More often than not, this type of review turns negative. We naturally focus on what we couldn’t control, or the goals we didn’t hit.

However, if you look at the big picture of how you improved, and what prevented you from hitting your goals, you’re able to adjust to set more realistic resolutions for 2022.

When you set new goals with the knowledge of how last year went, you’re able to:

1. Set realistic goals for yourself and your financial life.
2. Set stretch goals that push you outside of your comfort zone.
3. Align your goals with your values to make them more motivating.

Let’s look at a non-financial example we review in this episode:

In 2021, you meant to work out more to get in better shape, but it felt like life was always too busy.

In 2022, you know you value your family, and successfully coaching your son’s soccer team. However, your son plays soccer, and you find that when you practice with him, you’re quickly out of breath.

This year, you decide to align your goal of getting in better shape with your deeply held value of family and setting a good example for your son. You set a realistic goal of running 1-3 miles a few times a week before work, and heading to the field a bit early with your son to run sprints and do a quick workout together. Your stretch goal is to work out at the gym a few times a week on your own.

You’ve done a few things when setting this goal. You evaluated what didn’t work last year (not having enough time), you set a more reasonable goal that was connected to your values, and you came up with new tactics (like stacking your habits of doing a workout with your son before a practice you already attend) to stay on track.

You can do the same with your finances. For example, if you’re wanting to increase your savings, start by connecting it with a value. Here’s how that could look for this year:

1. You wanted to save more last year, but you got off track and didn’t hit your goal.
2. You know you want to build up a stronger savings to feel more confident before buying your dream home and starting a family.
3. To stay on track this year, you make a list of potential tactics. These include automating savings contributions, budgeting in “fun” expenses (like travel) so that you don’t feel deprived, and setting a more reasonable savings goal for yourself that feels achievable.

Are you ready to dive into setting your financial goals (and staying on track) in 2022? Reach out to our team by clicking here: https://avidplanning.com/contact

Referenced: AVID Chat #47 – https://youtu.be/9yGFobdluFQ

January Is National Financial Wellness Month

January is Financial Wellness Month, a time to remind people to plan and update their financial strategy.

It’s a great time to connect with your financial professional to discuss your financial situation and aspirations for their future. It’s also a good time to connect to see if your financial strategy needs any adjustments or changes based on your lifestyle.

Defining Financial Wellness

The first thing to do is define what “financial wellness” means for you. This might drastically vary from person to person. It is informed by who you are, where you are coming from and what your experiences with money are. A person who has had serious financial troubles in their life might have different expectations from a person who has enjoyed relative financial stability.^1,2

How, then, to define this? First, ask yourself what you need to feel secure, financially speaking. Here are the questions to consider:

• How much should you have saved? 
• How much income should you be bringing in each month? 
• Where are you at with your debt? 
• Would things be simpler if you carried less debt? 
• How fluid is your cash flow when it comes to expenses that are not urgent (taking your family out to dinner or on a small trip) versus larger financial goals (such as buying a new kitchen appliance)? 
• Finally, and perhaps most importantly, will you be able to retire at your target age?

Financial Wellness Goals

Thinking about financial wellness is often a matter of setting goals for what you can accomplish now and what you can work on to make it a part of your larger financial strategy. For now, consider taking these actions:³

• Have a values-based conversation with the decision-makers in your household, meaning any tax-paying adult who contributes income and shares responsibility for the bills. This could be your spouse or a family member. Make sure that the non-essential things you are spending money on lining up with your commitments to meet your financial needs. This is not a “stop getting lattes” conversation; it is a “are we spending money on the things that matter?” conversation.
• Consider automating payments, especially towards regular items, including student loans, credit cards and other installment payments.
• Creating an emergency fund reflecting 3–6 months of household expenses will afford you a stable foundation going forward. If that seems too ambitious, build the fund a month at a time until you reach your goal.
• Make regular contributions to your retirement accounts. Take advantage of any matching contributions you might get from your employer. 
• Make long-term financial goals. If you are thinking in terms of buying a house, for instance, let that guide your overall financial strategy. 
• Is becoming totally debt-free an achievable goal? It can be, if you make it a priority. That said, being totally debt-free may be a difficult task for most households. For that reason, it may be better for you to focus on your other goals first and make debt freedom a target for a later date: for example, being debt-free by retirement.

These are, of course, not hard and fast rules. As mentioned above, every individual has their own specific definition of financial wellness. Some of these examples might feel like a long reach. Others, you might already be practicing. The good news is that with careful practice and judicious scrutiny, many people can gain a feeling of satisfaction and even pleasure from maintaining financial wellness.

Having your financial strategy in place not only can mean a great deal to you in the long term but also may provide you some comfort in the short term. Schedule a time to discuss this with your trusted financial professional today.

1. https://www.forbes.com/sites/riankadorsainvil/2020/04/21/steps-to-financial-wellness-during-financial-literacy-month/?sh=32a176133346
2. https://www.cnbc.com/2021/01/21/12-month-roadmap-to-financial-wellness.html
3. https://www.moneymanagement.org/credit-counseling/resources/financial-literacy-month

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.