Start of year checkup and Tax prep

I'm one of those DIY tax guys.  My father was before me and I hate paying for something I can do myself.  I could do it all paper, but I do like to make things easy for myself.  I used to use the free online tools for H&R Block or TurboTax, but I haven't qualified for those in awhile.  These are mostly for simple tax returns.  I use H&& Block for no particular reason.  My wife used to TurboTax before we met.  They are basically the same so pick whatever you like.  Unless one doesn't work for you I would recommend sticking with one so you get an understand of the software year after year. What I like to do during this time of year is look for the software at discounted.  I look on Amazon, newegg, costco etc.  I can usually get the software for around $25 or 40% off.  No point in paying full price. This also was a tax write-off.  It may only be now if you use the standard deduction. 

 

 

Start a folder if you don't have one to keep all your tax docs either at your home or on your computer.  Best would be a encrypted thumb drive that you backup. You can either buy one, or use software like BitLocker or  Veracrypt.  This is also a great time to backup all you legal documents and HSA receipts. Copy this information to a external HDD and put it in a safe or lockbox. 

Check your IRA contributions either finish up your 2020 contributions or 2021.  This year we pulled back on contributing to our IRAs to build up more into our cash savings.  After this checkup I will pick how much I will put into an IRA this year.

Check on your investments across all your account and see where your are sitting.  I like to be around the 85-75 % in stocks and 25-15% in bonds.  With this crazy year it is sure to be out of wack.  

Check where your Net-worth is at.   This is usually pretty simple.  Add up everything you own. Including cars and homes. Then subtract everything you owe.  If its a positive number. Great. If its better then last year Even better.  If 2020 got in the way.  That is OK 2021 will be our year.  

What I also like to do is see what my net worth is without House or cars. One because car value decrease so much every year and your house is a place you live and your are unlikely to sell it and not replace it with something close to the same value.  Then compare with previous years if you can otherwise write it down in google docs for future reference.  I use Personal Capital for this so it is very simple to get.

Also a great time to look at your insurance (home, car, and life).  If you don't have a will start getting that done. I've been very bad at this and very over due. 

 

Lastly since it is the beginning of the year it is time to reevaluate your budget.  Make sure it still make sense and look how well you did over the year. Adjust accordingly or see if you can trim it a little more.

 

Lastly talk with you spouse if you have one.  This is a great time sine you've done all the work to talk through everything and to make sure you are both aware of your goals.  It is very important you are both aware of the state of things.  You spouse doesn't have to be onboard with FI/FIRE, but they can't be against you. If they are things will no go well for either of you.  I will say hope is not lost if they are not onboard and there are ways to continue the path and still be happy together.

Last of all. Give yourself a pat on the back. You made it 2021. Barely.

HYOSA - Saving account

 HYOSA - High-Yield Online Savings Account

 

I've been using an online savings account for about 20 years now. I switch because my bank was providing a tiny .01% interest rate and I wanted something that would provide value and protection from my checking account.

 

I like having access to a savings account that I can get to my money within a couple of days or next day for a fee.  Some may say you don't need any cash in a savings account and invest that money.  I believe having 6 months expenses saved in these three categories is a good safely net for everyone.

Between Checking account (enough to cover monthly expenses with some buffer) and Savings about two months in chase to building interests and only touch for emergencies.  If I've done my math correctly thats about 3 months of saving in cash very accessible.  The last bucket for the next three month is investing is a safer allocation.  I put mine in Vanguard  LifeStrategy Moderate Growth. Yes the expenses ratio is a little hire then straight index fund, but it gives a good balance of US Stock, International Stocks, and bonds.  Basically 60/40 which is conservative in my mind. I fill them up like you would a bucket I fill the checking once that is filled all the spillover goes into the online savings account.  From there the rest goes into my saving investing until I reach the 6 months total.  This works the same for taking money out.  All money comes out of checking.  If you miscalculated you checking or an "emergency" happens you first pull from the online savings.  Only pull from the investments bucket if needed for that emergency not to fill up the online savings. This is because it will be a taxable event and you will having to pay taxes on any income made.  At this point you stop added to the emergency investment account and fill up the checking then the online savings.  Everything else after that is your to using for other investments.

HYOSA account are great and bad at the same time. The interest rate usually changes by a few points monthly e.g. 1.1% to 1.0% usually not enough for you to care, but like now they are around 0.4% which is sad since last year it was 1.5%.  Still better then the 0.01% from the traditions bank savings account.

I have heard from allot of people that there really isn't a point in having a savings account and anything about your monthly expenses could be in an investment account.  There is something to say about using a money market account for your online saving, but I like the ease of transfer encase I need the money quickly while online saving usually have a higher return.  Also since it is part of the emergency fund I want it isolated from other account being able to access.  Only my checking has access this account accept maybe auto deposits from work. You can make the same argument for those who say it should all just be invested into the market.  I can easily see that if you have significant stock pile to invest/invested in a taxable account this could work.  The problem I have is if your investments went down by 20% would you still be able covered for an emergency and be able to pay taxes on the selling of your investments.  I personally like to be a little more cautious then only having a checking account and investments only.

Really if you are working to build any kind of savings you can be wrong.  Last year was a reality check for everyone. Hope for the best and prepare for the worst.