Have you started shopping yet? No, I'm not talking about shopping for the holidays; I'm talking about something more important — your health insurance.
It's that time of year when many employers have their open-enrollment period and the federal and state health insurance marketplaces are open for business. Open enrollment is your annual opportunity to review and make changes to your health insurance plan so you end up with the best plan for your needs.
Know your taxes! I am a big fan of the philosophy: No one cares more about your money than you do. Even if a professional prepares your taxes every year, learn to do it yourself. Aside from what you'll save in fees, here are two benefits of learning to prepare your taxes yourself:
- By doing your taxes on your own, you can learn quite a bit about your finances and get a lot of ideas on how to make your money work more for you.
- Sometimes a professional might not ask the right question because they don't know everything that went on in your life this year. If you learn to prepare your taxes yourself, you will become more aware if a professional is missing any deductions.
Educate yourself. This is an excellent place to start — IRS tax tips.
If a professional prepares your taxes…
Set up a meeting with your accountant/tax adviser.
When I was in my 20s, I was single, without kids, renting, had graduated from college, working at my first job and no interest whatsoever in taxes. My feeling was, Why should I waste time thinking about taxes? As a single, renter with no kids, I would get absolutely no deductions or credits -- and in addition to that, I had nothing to itemize. That meant I should have just filled a 1040EZ and been done with it, right? Right?
Most of us who are starting our financial journey think this. It is not always true. The assumption that paying attention to taxes at this stage provides little benefit, can result in us losing out on a lot!
That is why I decided to write this post, focusing on people in their 20s -- to get their attention, and to tell them there are reasons to take a second look at their taxes (though taxpayers of any age can equally take advantage of these deductions/credits).
Until a few years ago, I used to frequent a store that gave $10 (technically a credit of $10 toward future purchases, but it wasn't cash) back for every $50 purchase. Whenever I got to $40 in purchases, I would add unplanned items to bring the total up to $50 as I couldn't leave the "free" $10 on the table. My rationale was that these items were technically free. But in reality, the rationalization is nonsensical because: (1) The $10 credit was only applicable for purchases made weeks after my original visit and, by the time it became eligible, I had invariably forgotten that I had the credit and so it naturally would expire; and (2) I only needed $40 worth of items, so even though I could get $60 worth of items for $50, I paid $10 more than I intended to and I ended up with $20 worth of stuff that I didn't need. It took me a while to stop this behavior.
We all make money mistakes, and some of us make more than others. But most of time the mistake isn't obvious to us because we also have a lot of biases that prevent us from making rational decisions. Here are some of the biases that cloud our judgment:
1. Status quo bias
In general, peo
Learning to manage your finances isn't something most people would put at the very top of their "most fun thing to do" list, but we all know that we ignore money and budgets at our peril. Having a strong handle on what money is going in and what money is going out is an essential first step. But you don't have to be overwhelmed. By setting aside between five and 30 minutes each day, you can transform your finances dramatically in 30 days. Here's one such plan:
Day 1: Compile all your expenses and income. Bucket them by categories such as Savings (retirement accounts, emergency fund), Mortgage/Rent, Household Expenses (food, utilities, heating oil, etc.), Commuting (tolls, commuter rail cards), Debt Repayment (student loans), Entertainment. It doesn't have to be perfect, just complete. Use a service like Mint, software like Excel or even just good old pen and paper -- whatever you are comfortable with. Yearly budgets are more accurate because you will see irregular expenses like property taxes or gifts.
Related >> Building a budget on variable income