It’s a new year and everyone is beginning to receive their W-2s and 1099s as the tax season quickly approaches. I was speaking just yesterday with a woman who said she looked at her W-2 and the first thought that crossed her mind was, “Where did all that money go?”
I talk at length with folks about the personal side of personal finance – how you behave with money will indicate your likelihood of financial success with far greater accuracy than how much you know about the world of finance. However, we can’t leave out the fact that our household is a distinct financial universe, complete with its own micro economy. If you want to stay on top of that economy, you’ll need to approach it from a business perspective.
Keep good records. I’m not going to say you have to journal every transaction in a spiral bound notebook, but if you already live on a budget you should be able to account for your actual monthly spending in each budget category and aggregate that for the year. Also, how much money did you actually make last year? I use spreadsheets to track my regular income from employment along with income received as gifts. This helps me stay accountable as I distribute ALL my income among my expenses and savings goals for the year.
Stay organized. Tax time can be very stressful if you aren’t organized throughout the year. Use folders to keep all tax-relevant documents together like mortgage interest, property tax, and charitable giving statements.
What you own and what you owe. Review your assets, from retirement plans to vehicles. Do your investments reflect your risk tolerance? Have your insurance needs changed? What loans and debts are currently outstanding? How much were you able to pay off last year? How much interest did your debt cost you?
Look at it this way: you’ve been hired to manage You, Inc. Taking stock of your performance on an annual basis is like a job review. So, do you deserve a raise?
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