Are You Making These Common Finance Mistakes?

John J Bowman Jr Accountant - Personal Finance Mistakes

It happens every month without fail. When payday rolls around on the third Friday of the month, your bank account looks healthy – filled with money to spare, even. With a few easy taps on your banking app, you’ve sent off your rent, covered your electric bill, and paid off a little of your credit card debt. You decide it will be alright if you splurge a little on dinner, a movie, a maybe even a quick weekend trip to the local shopping center. A week or so later, you absentmindedly swipe open your banking app – and stare in disbelief. Your bank balance is practically anemic. Where did all of your money go?

 

Spending Impulsively

Your morning Starbucks latte could be costing you. Crunch the numbers: a venti latte costs roughly $4 a pop. If you multiply that times the five days in a work week, you find yourself with a coffee bill of $20 a week, or a full $80 a month. In other words, the money you spend on coffee alone could have covered your entire grocery bill for a month. Small expenses add up – so avoid making impulse purchases. If you think you might be splurging just a little too often, check! At the end of the month, compile all of your card charges and assess how much you spent on necessary items or services (i.e., rent, food, gas) versus how much you spent on unnecessary treats or luxuries. You might just find yourself reconsidering your coffee budget afterwards.

 

Paying Too Many Subscriptions

Do you really need Netflix, Hulu, Amazon Video, and HBO Go? Probably not. Signing onto a service may seem simple and cheap when you’re in the free trial period, but those monthly fees accumulate quickly. Do an inventory of the subscriptions you have and decide which ones you can afford to cut ties with.

 

Living on Credit

Having a credit card doesn’t give you access to free money! Credit card companies make their enormous profits off of people who make minimum payments and allow interest to accrue. Just think – by leaving the expense of a single small item on your balance, you could end up paying out twice the original price in interest and fees. Believing in the “free money” myth could cost you money; living on credit could leave you bankrupt.

 

Overspending on Housing

You may want the in-building gym or slickly designed kitchen – but can you afford it? According to a report from Harvard’s Joint Center for Housing Studies, over one-third of all American households spend 30% or more of their take-home pay on housing expenses. Most financial advisors set the expense ceiling for rent at 30% of a person’s take-home pay; however, even this might be too high for someone struggling to pay off hefty student loans or provide for a family. Don’t let a nice apartment or charming home lure you deeper into debt. If you do, you might find yourself needing to sacrifice your personal life and stay home far more than you ever wanted to.

 

“Keeping Up” With Others

If all of  your friends leapt into crippling debt, would you follow? The answer might not be as easy as you think. Sometimes, it can be difficult to say no to a weekend trip or fancy dinner – even if you know that the expense would eat into your budget for the month. Make a habit of thinking your budget first, and fun second – or risk losing out on a significant chunk of potential savings.

 

Documentation For Tax Season

For some, it may be the most wonderful time of the year- Tax Season! Whether or not this is true for your situation, filing taxes is a civic duty, therefore there is no way out. Here are some of the most common forms of documentation you will need in order to file your taxes. Happy filing!

Personal and Identification

First and foremost, the most important thing you’ll need to have alongside you when filing your taxes is your social security number. This is a form of identification that is used to identify you as a taxpayer, and without it, you will not be able to file your taxes. If you have misplaced your social security number, be sure to contact your social security office. Bringing a copy of last year’s taxes may be helpful to you as well, especially if you’re filing on your own. This will help you answer any simple questions that you may have during the filing process. If you’re expecting direct deposit, bring along your bank account and routing information for an easy way to receive your processed return.

Earnings

A W-2 Form is required to file your taxes as this form shows how much money you’ve earned throughout the year. As long as you bring this form along, your taxes will be simple to file.

Investments

The tax filing process begins to get tricky after you learn where you’ve spent your money throughout the year. If you have any type of investments, such as property, stocks/bonds, or have done any type of freelance work, you should receive a 1099 form in the mail. This form will be required for the tax filing process, as you will enter how much of your earning from your W-2 was paid into taxes for your investments.

Education

If you are recently attending a higher education institution, you will receive a 1098-T form. This from is used to show how much you paid to higher education which will be written off when you file your taxes.

Interest Calculation

A 1098-E form will be sent to you if you have a mortgage, private loan, or debt (such as educational loans).

Records

Throughout the year, it’s important to keep track of records, whether digital or print receipts. Records should be kept for the following; job search/ work expenses (that you paid yourself), medical care payments, contributions or donations, childcare, rental expenses, educational expenses (supplies, transportation, etc.).

Additional

If you receive any additional forms or records in the mail from the IRS, you should bring them along. Your account will be able to determine which forms will be needed, but it is always better to be safe than sorry.

Tax Penalties to Avoid

Tax time will be here before we know it! We talk an awful lot about what you need to do and have in order to file successfully. We don’t discuss enough what you should steer clear of. If you are penalized for any reason, you’ll end up owing more money. Take a look at the top four ways in which people accrue penalties. Be careful to avoid these pitfalls come tax season.

Late filing

The cut off for filing a tax return is April 15th and it’s the same date every year. To avoid receiving a late file penalty, file before the 15th or request an extension if absolutely necessary. Tax season can be stressful, but starting early to get everything completed before April 15th will save you some money and frustration.

Nonpayment Penalty

It’s not enough to just file your taxes by the 15th. You also need to pay your taxes by then as well. If you avoid paying what you owe by April 15th, you’ll end up owing a penalty equal to .5 percent of your due taxes. If that still is not unpleasant enough, you can end up owing up to 25 percent of your tax balance for nonpayment.

Math Errors

Most common on pen-and-paper tax returns, math errors can end up costing you. If you have poor math skills and end up paying less than the actually owed amount, the IRS can charge you interest on the remaining balance until it is paid off. Do yourself a favor and double check your math, file electronically, or hire an accountant.

Incorrect Charitable Donation

For non-cash donations, such as clothing or furniture, it’s imperative that you have proper documentation. When it comes to non-cash items that you plan to claim, make sure you have a copy of the itemized receipt. If you do not have proper documentation, you can be penalized during an audit for up to 25 percent.