Hi Friendos,
Would you be willing to send me questions you have about taxes? This summer I am sending all y’all to summer school for a class called Anatomy of a 1040, a multi-part series about how various aspects of taxes work and why it matters. The curriculum will be even stronger if I make sure it addresses your specific questions, which you can submit anonymously here, or by replying to this email.
Onto today’s topic, which is financial management. Some people might take this to mean oversight of an investment portfolio, but I mean something much broader. To me, financial management has many components including:
- Identifying overall life goals to identify their money implications (having enough to retire, going to school without taking on loans, being able to cut back to part-time work only, paying for kids college, funding travel, supporting family members, etc.),
- Budgeting (making a plan for saving, investing, spending, and giving),
- Tax planning (minimizing taxes where possible),
- Tax preparation (filing tax returns),
- Cash flow management (checks don’t bounce, bills are paid on time, tax payments sent in),
- Risk management / problem avoidance:
- Purchasing appropriate types of insurance (health insurance, term-life life insurance if you support others with your income and/or labor, homeowners/renters’ insurance, auto insurance, perhaps other types such as disability or umbrella),
- Having an emergency fund so you don’t get into trouble/debt with unexpected expenses,
- Thinking about what happens to your household’s finances if you die or are just unavailable for a while like if you have an injury and are in the hospital for a time (have a will, have a health care proxy, have beneficiaries named on all your accounts, consider whether bills will still be paid and the like),
- Income review (assessing fairness of salary, considering side work),
- Consolidating, closing, or opening investment and banking accounts as needed, and
- Oversight of investment accounts (selecting investments and then buying and selling them as needed).
Do you feel well-positioned in all those areas? Ok be honest – did you just skim that list or really read it and consider each one? Are there things that should be on your list considering your own circumstances? If you feel like you have multiple areas to work on, just pick one for now: decide where you want to get to with it, and then make a plan to get there. If you don’t know how to get there, the plan could be time-based, e.g., research it for __half an hour__ a week until you can sketch out specific steps. I am like most people in that I overestimate what I can do in a day, but I underestimate what I can do in a couple months or in a year (if I keep chipping away at it).
Sometimes I think people get all caught up with their investment portfolios because that’s easier than grappling with some of the more difficult areas I outlined above. But you need to furnish all the parts of your financial house!
-Stephanie
Frequently Taxed Questions 