Are You Surprised With Your Tax Return?

While it is common for people to be surprised with their tax return results, ideally, you should not be surprised with your tax return results. There are several things you can do to help minimize surprises and ensure that you have a good understanding of your tax liability:

Tax Planning

  1. Keep Track of Your Income and Expenses: Throughout the year, keep track of your income and expenses, including any deductions or credits that you may be eligible for. This will help you estimate your tax liability and ensure that you are taking advantage of all available tax breaks.
    2. Review Your Withholdings: Review your W–4 form and make sure that you are withholding the appropriate amount of taxes from your paycheck. If you have had any significant changes in your income or family status, it may be wise to adjust your withholding allowances accordingly.
    3. Know where you land in the tax brackets. How much income do you make? Use that number and subtract the standard deduction for your filing status to get an estimate of your taxable income. Then google tax brackets for that year. Observe where you land and see if it makes sense.
    4. Do you have other income, such as investment income, retirement account distributions, self–employment income, rental income? Do you know how that income is taxed?
    5. Stay Informed of Tax Law Changes: Keep up to date with any changes to tax laws or regulations that may impact your tax liability. This will help you make informed decisions when it comes to tax planning.
    6. Work with a Tax Professional: If you have a complex tax situation, it may be beneficial to work with a tax professional who can help you understand your tax liability and ensure that you are taking advantage of all available tax breaks.

By taking these steps, you can help minimize surprises and have a better understanding of your tax liability when it comes time to file your tax return.

Personal Income Tax Course

We are developing a self–study course that teaches you the basics of a personal income tax return so there are no surprises. If you want to be notified when it is available, please enter your email address here.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

$10K Federal Student Loan Forgiveness Announced

This is going to be short post because we do not have the details yet. President Biden announced on August 24th that he is authorizing $10K of student loan forgiveness.

Here’s what we know:

To qualify for this forgiveness:

  • Income must be less than $125Kfor Singles or $250K for Head of Household or Married Filing Joint
    • We aren’t sure how they will define income—wages or adjusted gross income based on which tax year?
  • Must be FEDERAL loans—if you refinanced into a private loan, unfortunately this doesn’t count
  • There may be an additional $10K of forgiveness if you qualified for the Pell Grant

What we don’t know(the details!):

  • What year will this income threshold be based on?
  • The mechanics of getting this done—form, apply online, timeframe, etc.?
  • Will this forgiveness be taxable? Most loans that are forgiven are considered taxable. Currently the Public Service Loan Forgiveness program is not taxable.
  • If you have multiple loans, can you choose the one with the highest interest rate?

As soon as the details are worked out and more information becomes available, we will be sure to post another update so stay tuned.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Personal Inflation Rates

There’s a lot of talk about inflation right now because the most recent inflation number was over 9%! However, this doesn’t mean that everything you spend money on has gone up nine percent.  That’s where we get into personal inflation rates.  Your personal inflation rate has to do with how you spend your money.  According to the Department of Labor, the 9.1% inflation rate is the average of all items over the last twelve months.  This means some things are higher than others.  In order to get to your own personal inflation rate, you would have to measure the increases for where your money is spent. 

Let’s take a look at a few items that are a part of the all items inflation rate1.

 

Food—10.4%

Energy—41.6%

Used Cars and Trucks—7.1%

Medical Care Services—4.8%

 

As you can see above, food and energy have increased significantly over the last twelve months.  If these two items are large components of your monthly expenditures, then your personal inflation rate could be even higher than 9.1%.  However, if your largest budget item is your mortgage, then don’t forget that the principal and interest parts of your monthly payment, do not change.  So, if 25% of your expenditures are principal and interest, then 25% of your personal inflation rate is 0%.

For some more information on inflation, check out this previous post about inflation.

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As interest rates are rising, you are starting to see the difference in savings account rates.  Your typical brick and mortar banks are not increasing rates as much as your online banks.  Check out www.bankrate.com to compare interest rates for your emergency funds (make sure there’s FDIC insurance as well). 

 

There’s also a lot of hype around I-Bonds as well.  The inflation rate for I-Bonds is great right now, but you need to make sure you understand the mechanics for how these work too, which can be found here.

Inflation is a part of life and something that we all have to deal with.  The important thing to remember is to look at your budget and see if you can make changes or substitutions to help combat inflation and to make sure you are including inflation as part of your financial plan. 

 

If you need help with your financial plan, Financial Journey is here to help. Schedule a call with us today!

 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way to be considered investment or tax advice.

 

1 https://www.dol.gov/newsroom/economicdata/cpi_07132022.pdf

How Much Money it Takes to Purchase a Home

Buying a home is the American Dream and it is also the largest purchase we will make during our lives.  Buying a home isn’t quite as simple as having a down payment and getting a loan.  There are several pieces to the puzzle, especially when you are obtaining a mortgage.  The goal in this post is to touch on the most common costs so that you are well prepared and know about how much it’s going to cost to get into a home.

The first thing I want to mention is that buyers do not pay their real estate agents a commission.  The seller of the home is the one who pays the selling commission that is split between the buying and the selling agents for a transaction.  That being said, there are a lot of different fees for buyers that come together for your closing costs.  

 

Let’s take a closer look.  I like to break the costs up into 4 categories based on when you actually have to have the money:

 

  • Down Payment
    • Earnest Money Deposit–this is the money you put down when you are making an offer.  Typically 1%  or so of the offering price, but if you are in a competitive market, you may put more money down to show the seller that you are serious.  When writing the contract, you can put certain contingencies in the contract such as home inspection and financing contingencies–basically you can get out of the contract and get your earnest money deposit back within these contingency deadlines.  Otherwise, if you don’t follow through with the contract, then the seller gets to keep your earnest money deposit.
    • Down Payment–this is the down payment on the entire purchase.  This isn’t due until closing time and your earnest money deposit counts towards this.  It is worth mentioning, that if you put 20%, you shouldn’t have to pay any mortgage insurance premiums.  You can put less than 20% down, but you will usually have mortgage insurance costs on a monthly basis.  Talk with your lender because there are so many different lending options available. 
  • Up Front Costs–you pay these after you have a contract, but before closing.  These costs are the ones that you cannot get back if you do not make it to closing. 
    • Appraisal–if you are getting financing, you will be required to have an appraisal because the lender is not going to lend you money on a house that costs more than what it is worth.  If the appraisal comes back for less than the contract price, then you will have to make some adjustments in either price or more money down to meet the lender’s requirements.  If you have a contingency built in, then this is where you can walk away as well.
    • Home Inspections–even if the lender isn’t requiring a home inspection, most people want a thorough inspection to know what they are actually buying. Some insurance companies require certain reports from the home inspection in order to obtain insurance as well.
    • Surveys of the land–this depends on the type of property
  • Closing Costs–these are the most shocking costs that buyers face.  There are so many different things that need to happen in order to transfer ownership.  These differ from state to state and typically range from 3-4% of the sales price of the home.  Some of these costs may include the following:
    • The remainder of your down payment
    • Title search fees 
    • Initial escrow amounts like a year’s worth of homeowners insurance and/or half a year’s worth of property taxes
    • Transfer taxes–city, county, state, any special assessments 
    • Lender costs–all fees associated with getting the loan which includes the commission for the lending agent, credit checks, document processing fees, etc.
    • Settlement agent representation fees–these are the people preparing the settlement documents between the buyer and the seller.
  • Monthly Costs–this is what your monthly payment will consist of which is PITI (Principal, Interest, Taxes, Insurance)
    • Loan–PI–this is the monthly payment for the term of your loan.  If you have a fixed rate and term, such as a 30 year fixed loan, then your P&I stays the same for the life of the loan.  You don’t have to worry about inflation, because this is fixed.
    • Escrow–TI–this is your annual taxes and insurance.  These items do change on an annual basis and your mortgage company typically ‘escrows’ this and pays it on your behalf.  This way you are paying a little every month, then when your annual insurance or semi-annual property taxes are due, then money is in the escrow account and the lender pays this directly.  Each year, you will get a notice of how much the taxes and insurance are estimated to increase and the TI portion of your monthly payment goes up a little.  
    • Association Fees–these are HOA (Homeowners Associations) or Condo Fees.  Your lender does not escrow these payments, you will pay these directly to the association
    • Maintenance & Repairs–you’re a homeowner now, so this means you will have to maintain the property yourself and fix anything that breaks

Hopefully this information gives you a better idea of what home ownership costs.  There’s a lot of other information that comes into play with these costs and planning to prepare for these.  

 

If you need help navigating one of the biggest purchases in your life, please schedule a call and see how we can help.  

 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Alabama, Virginia and in other jurisdictions where exempted.  Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice. 

Why women need to be proactive about their finances after divorce

Divorce is definitely not easy, but sometimes it is necessary and it can have a huge impact on women and their finances. 

Even though women are the ones who initiate divorce 69% of the time (according to Stanford University), there are high emotions and a lot of uncertainty. How will your life change? Your kid’s lives? Your financial situation? 

The U.S. Census Bureau has some startling statistics on divorce in the United States. Approximately every 42 seconds, there is one divorce in America. You are not alone.  With women typically living longer than men, there’s more years to plan for.  Coupled with the financial toll that divorce has, it is critical to prepare as much as possible to soften the blow.

How to financially prepare for a divorce

When you’ve decided to file for divorce, it’s time to gather as much information as possible and figure out a plan.

When it comes to your new financial future, here are a few things to consider:

Take inventory of your finances

Taking time to get organized and educated is a key factor  if you’re planning to leave your marriage.

Here’s a short list of items to start with:

– pay stubs

– bills

– credit card statements

– bank statements

– mortgage statements

– investment statements

– income tax forms

– contents of your safe or safety deposit box

– any other pertinent financial documents

The more information you can give your financial planner and lawyer, the better.

Your monthly income

Perhaps you have your own income at the time of divorce and earn more than your spouse, or maybe you have a lower income than your spouse because you have been out of the workforce for years. 

Either way, you should work with your attorney and financial planner to try to calculate how much income you’ll require after your divorce. Once you have this information, then you can start planning.  There are a variety of sources that may or may not be available to support your income needs–current and/or future jobs, savings/investment accounts and spousal support.

Unfortunately, the reality is that many mothers are supposed to get alimony or child support but don’t. According to the U.S. Census Bureau, only 45.6% of custodial parents who were due child support in 2013 received full payments. This loss of income can be a significant financial blow. That’s why women must prepare for divorce financially and figure out their budget once finalized.

 

No more joint accounts

If you have a credit card or loan that is in your name and your spouse’s name, you are both responsible for it. It’s best to avoid any negative situations like your spouse running up a large balance on a joint credit card and refusing to pay. This drags down your credit. So be sure to take your name off all joint accounts. 

Have at least one credit card that is in your name only. This will help you start to establish your own financial independence. Next, get a separate checking and savings account and save enough money for a couple of months worth of living expenses.

What are your next steps?

With this new independent life, there are countless things you should consider in your financial planning.

  • will you stay at the family home
  • how will you pay for it
  • do you need to get a job

How to pay your legal fees

When it comes to divorce, most people require a lawyer. If you can’t afford one or your spouse has removed your access to funds, there are a few things you can do. 

  • Ask about a payment plan. Divorce is expensive! Many lawyers offer payment plan options. You might have to pay an initial retainer, and then you would proceed to pay in monthly installments.
  • Apply for a personal loan. If you have good credit, you can consider taking out a personal loan to cover legal costs. 
  • Ask family or friends to help. No one wants to ask friends or family for help, but they may be able to help you at this difficult time. 
  • Look for pro bono services. The American Bar Association states that lawyers should try to contribute at least 50 hours of pro bono legal services per year to help those in need. With that in mind, it wouldn’t hurt to ask the attorney if they can provide pro bono legal aid.
  • Contact the family court in your area. If none of the above options are viable, reach out to your family court. They can refer you to low-cost civil legal services agencies and other resources in your area.

Getting your financial life back in order after a divorce

Once your divorce is final, it’s time to heal your emotions and recover your finances.

As you’re adjusting to your new budget, living independently and paying off debt that you’ve accrued due to your divorce, you might have to tighten your wallet and cut some expenses. 

A nice vacation may be just what you’re looking for, but now is the time to save. Work with a financial planner to track your income and expenses, so you know what kind of budget you’re working with. 

Pay off Debt

As you’re paying off debt, don’t forget to check your credit periodically. It’s not uncommon for credit to take a hit after divorce. If yours is looking less than great, you should work on rebuilding it, as your credit score affects so many things in your financial life. 

To pay off your debt faster, it might be good to look into a side-hustle. There are a lot of options, and with so many jobs going remote, it may be a great choice to freelance. 

Save for Retirement

It’s important to not only pay off debt but also save for retirement. With life expectancy for women at 81.2 years (and growing every day with modern medicine), planning for your future is critical. A great way to save for retirement when you’re focused on getting through each day is to make it automatic. If you have a company 401(k), have them automatically deduct it from your paycheck. And if that’s not an option, set aside a fixed amount each week to save in an IRA or other retirement plan that may be appropriate for your situation (always check the rules).

 Gaining financial independence may be challenging, especially if your former spouse took care of all the finances in the relationship. However, with a plan in place and sticking to a budget, you will get to a place where you will have financial freedom and be able to grow your net worth.

Life beyond challenges

Divorce can significantly impact a woman’s financial and mental health. It may be challenging, but creating stability during this season of life is doable with enough planning and a strategic approach. 

Nothing is permanent, and this chapter is merely an obstacle. You will find a way to navigate it and will once again thrive.

You are independent and free. Set goals, live simply, and before you know it, you will be living the life you desire.

If you’re not sure where to start on your own financial journey, I encourage you to download our FREE Financial Empowerment Guide Exclusively for Women. 

If you are looking for a trusted partner to help you navigate financial decisions, we are here to help.  Schedule a meeting with us today to see how we can help you with your own financial journey. 

 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

How Interest Rates and Mortgages Affect Each Other

Interest rates can have a big impact on your monthly mortgage payment. One item that will come up when you borrow money for a mortgage is the interest rate. Interest rates can affect your monthly mortgage payment and, in turn, will affect how much money you have each month to pay other bills, buy food, travel, and pay for entertainment.

How your mortgage is affected by the interest rate

Interest is the money that you pay on top of your mortgage balance. Your interest rate is determined by the terms of your mortgage, and the higher your interest rate, the more money you’ll have to shell out each month. 

The best way to keep your interest payments affordable is to keep your interest rate low. You can do this by looking around for a mortgage with favorable interest rates or by refinancing your current mortgage. 

The interest rate is one factor that determines how much you’ll pay each month. Your payments also depend on the amount of money you borrow, the term of your loan, and any escrow or insurance payments. If you keep this in mind, you can make sure that your mortgage payments are affordable.

When you’re shopping for a mortgage, be sure to compare interest rates from different lenders. This way, you can get the most competitive rate possible and save yourself some money each month.

Mortgage Points Can Make a Huge Difference in your Finances

Interest rates may not seem like a big deal, but even a small difference can add up to a lot of money over the life of the loan. 

For example, let’s say you have a $200,000 mortgage with an interest rate of 3.1% over the life of the loan, you would end up paying $215,607 in interest. If your interest rate was just 2.7%, though, you would only pay $193,258 in interest – that’s a difference of more than $22,000! 

Here’s how to get lower interest rates

Typically, the people who have better credit and who can pay more for their down payment will enjoy lower interest rates. If you’re thinking about buying a home soon, you can get lower interest rates by investigating down payment options, getting your credit report, and improving your overall credit. To improve your credit:

  • Pay your bills on time
  • Fix any credit report errors
  • Pay down your debt
  • Avoid high credit card balances
  • Limit your number of credit cards

Having good credit could help you get approved for loans with lower interest rates and can help you get approved for credit cards with better terms, such as lower interest rates and higher credit limits. 

In addition, landlords and employers often consider credit when making decisions about rental applications and job offers. Therefore, it’s important to understand how your credit works and how you can improve it. 

A financial planner can help you assess your current situation and develop a plan to improve your credit. By understanding your credit history and making smart financial decisions, you can take control of your credit and safeguard your financial future.

What factors influence interest rates?

The Federal Reserve is just one of the organizations that set interest rates. They look at several different factors, such as how much money is being borrowed and the state of the economy. The Federal Reserve also looks to see what other banks are doing to get an idea of where interest rates should be. 

Should I still buy a home when interest rates are high?

Interest rates are a big factor to consider when buying a home, but there are other things to think about, too. Your financial stability, job security, and credit score all play a role in whether or not now might be a good time for you to buy a house.

You also have to consider how much money you have saved up, how much you can afford to borrow, and what your monthly payments will be.

My recent blog post Buying or Selling Your Home may be of interest to help you along with your decision.

Fixed-rate -vs- Adjustable-rate mortgages

A fixed-rate mortgage is a loan where the interest rate stays the same for the life of the loan. This type of mortgage is a popular choice because it is predictable. Your monthly payments are the same each month, making it easier to budget for your home. They can last 15 years or 30 years and are ideal when Federal interest rates are low. 

Adjustable-rate mortgages (ARMs) are popular because they offer lower interest rates than fixed-rate mortgages in the beginning. This type of mortgage is riskier because as the interest rates go up or down, it makes the monthly payments more or less expensive. 

ARMs are popular because in the beginning they offer lower interest rates than fixed-rate mortgaging and can be refinanced for better rates. If interest rates rise, your monthly payments will go up, which could make it difficult to afford your mortgage payments. However, if interest rates fall, you may be able to refinance for a lower interest rate and save money on your monthly payments.

The best mortgage rates take a proactive approach

When you’re looking for a new home, it’s important to find a lender that you can trust. A good lender will be able to answer any questions you have about interest rates, your credit history, and how the interest rates will impact your monthly mortgage payment. They can also help you find ways to save money on your mortgage to make it more affordable. 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Inflation

Inflation is the general increase in price level which corresponds to a reduction in purchasing power. Why do we care about it? We care about inflation because our dollars buy less. For example, remember when you could buy a gallon of gas for $1? Now it’s $3 a gallon. The same amount of money that would fill out tanks up will only fill up one third of a tank now!

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