Money Management

You don’t necessarily want to be first in line. 

You’ll often hear that getting ahead of deadlines is a good thing to do, whether it’s finishing a project at work, paying a bill, or filing your taxes. And at this point, the IRS is already accepting returns for the 2022 tax year.

But while it’s a good idea to file your tax return before April 18, which is this year’s filing deadline, you don’t want to submit yours too soon. Here’s why.

1. You might be missing key forms

Companies and financial institutions like banks and brokerages are supposed to make 1099 forms available to tax-filers by Jan. 31. You’ll need those 1099 forms to report things like self-employment income, interest income in a savings account, or capital gains and losses in a brokerage account.

If you file your taxes too early, you might do so before some of those forms arrive. And that could put you in a situation where you then have to file an amended tax return, which has the potential to be a hassle.

2. You might have all of your tax forms, but corrected ones could come out later

It’s definitely not unheard for a given entity to issue a 1099, only to then send out an amended one several weeks later. That could cause a problem if you file your taxes too early.

Let’s say you receive a 1099 form from a given freelance client reporting $2,400 in income. You might rely on that form and put that figure onto your tax return. But what if that same client realizes it forgot to account for some work you were paid for at the end of the year, and it sends you an amended 1099 for $2,800 a few weeks later?

At that point, you’ll need to amend your tax return, because if the IRS gets a copy of that amended form (which it will), it could flag your return due to underreported income. So not only should you wait for your various tax forms to arrive in the mail or electronically, but you should actually then sit tight for a few more weeks in case amendments are issued.

3. You might rush through the process for no good reason

Rushing through your tax filing is a good way to make a mistake. And that mistake could have consequences, whether it’s landing you on an audit list or leaving you with a smaller refund than you’d otherwise be entitled to.

Rather than put pressure on yourself to get your taxes done as quickly as possible, give yourself enough time to go through the process carefully and methodically. You’re better off submitting your tax return in late February or early March and doing so correctly than submitting it in early February and realizing you’ve botched a number of key points.

It’s a good idea to not wait until the last minute to file your taxes. But there’s a danger in being too early as well, so keep that in mind as you set your own personal filing deadline.

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2023 is all about growth — personal and financial. 

On its face, saving money can be like pulling teeth. Owie. It hurts. Maybe that’s why Gen Z and millennials are checking out how to gamify finances in 2023, according to this year’s Pinterest Predicts. Financial challenges seem to be all the rage going into the new year.

Perfect timing. Saving accounts could use some growth. Due to factors like consumer inflation and dwindling stimulus stashes, the average American has less savings this year. Which means less money to pay off debt — top of mind among folks making financial New Year’s resolutions.

Looking for ideas? There are plenty of popular challenges to choose from. Here are three ways to make saving more fun.

Challenges

Participate in year-long challenges to make everyday savings fun and manageable. The point of challenges is to simplify money management and make saving fun.

1. 1,000 savings

Start small. The 1,000 savings challenge encourages you to save $1,000 over one year. The point is to build steady savings habits. After one year, you can double your goal or take on a more formidable challenge. You can put that $1,000 toward an emergency fund.

2. Envelope

Get physical. The envelope challenge starts with raiding your mom’s crafts drawer and pulling out a stack of envelopes. Label each envelope as a spending category (i.e., rent, groceries, dining out). At the beginning of each month, stuff each envelope with cash.

Then comes the fun part: spend! But be careful. When the money runs out, that’s it. You’re not allowed to spend more money on that category this month. This challenge helps you visualize where your money is going.

An alternative to the envelope challenge is budgeting apps. Like envelopes, they help you track where your money flows. You can typically create spending categories, too.

3. Bi-weekly

Stick to simple. The bi-weekly challenge is straightforward. Every two weeks, contribute to your savings account until you reach your financial goal.

To find out how much you need to save, divide your goal by the number of weeks in a given year (52), then halve that.

For example, if you want to save $1,000 in a year, you would need to save $19.23 every two weeks. By the end of the year, you will have saved $1,000.

Contributing twice a week keeps you engaged and makes saving feel more manageable.

Make it satisfying

The best games do more than entertain — they satisfy. James Clear, author of bestseller Atomic Habits, believes good habits should be satisfying. That way, you are tempted to repeat them. The trick is to immediately reward yourself for sticking with your goals.

For example: If you are trying to cut down on dining out, reward yourself for eating in. Say you decide to stay home. Put the money you would have spent on restaurant food toward your savings account. Boom. Instant gratification.

My kryptonite is ordering food delivery. This year, I’ve committed to cutting down on delivery costs. To make the habit stick, I send $20 to my stock brokerage account each time I successfully resist ordering delivery. It’s not perfect, but it has helped me reduce spending.

Choose a high-yield savings account

Make the most of your savings by putting that cash somewhere safe and profitable. The best saving accounts offer industry-leading returns on banked funds. Saving money doesn’t have to be painful — take on a challenge, and prepare for personal and financial growth in 2023.

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These are all important points to touch on. 

Getting married means making a big commitment. After all, you’re signing up to share your physical and emotional space with another person. And in many cases, you’re also signing up to combine your finances.

Speaking of finances, once you’re married, you may want nothing more than to protect your spouse from financial difficulties. A good way to do so is to buy life insurance.

But that’s not a decision married folks should make individually. Rather, you and your spouse should get in sync so you’re both comfortable with the amount of life insurance you’re putting in place. Here are some questions you should ask as you go about the process of shopping for life insurance.

1. How much life insurance should each of us have?

If you and your spouse earn roughly the same amount of money, then you may decide that you’ll get the same amount of coverage with each of your individual policies. But maybe that’s not the case. And if you earn, say, $100,000 a year while your spouse only earns $40,000, then it may not be necessary to buy as much life insurance for your spouse.

On the other hand, your spouse who earns less might become more of a caregiver to your children once you have them. So you may not want to skimp on life insurance for them despite their lower salary. Have that talk so you don’t end up over- or under-buying insurance.

2. How many years of coverage do we need?

If you buy a whole life insurance policy, you’ll be covered for the rest of your life. But whole life insurance can be prohibitively expensive, so many people find that term life insurance is a far more affordable option. In that case, though, you’ll need to figure out how many years of coverage you need.

If you and your spouse are in your 30s, you may decide that a 30-year term policy for each of you is a good bet, since that means having coverage until retirement age. Or, you may decide to only opt for 20 years of coverage, the logic being that if you have kids soon, a 20-year policy could get you to the point where they’re old enough to head off to college and start taking care of themselves.

There’s no right or wrong answer. The point, rather, is to land on a coverage period you’re both comfortable with.

3. What do our joint debts look like?

The purpose of putting life insurance in place is to make sure your spouse isn’t left in the lurch in the event of your passing. So you’ll want to consider the debts you hold jointly when deciding how much insurance to buy.

Many people aim to buy enough life insurance to replace 10 years of income. Some even opt to replace 20 years of income. But in addition to income replacement, you’ll want to secure a high enough life insurance payout to cover joint debts that could become a burden for a surviving spouse. So if you and your partner owe $250,000 on a mortgage loan, that’s a number to factor into your calculations.

It’s a good idea to buy life insurance, whether you’re newly married or tied the knot years ago. And it’s just as important to run through these questions together so you and your spouse end up with the right amount of coverage.

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Tom Petty was right — the waiting really is the hardest part. 

If you’re currently renting but ready to become a homeowner, I fully sympathize. That said, given how expensive it is both to become a homeowner and then maintain said home, it’s not a move to be rushed into or taken lightly. Remember, your costs don’t end after you find a mortgage lender, get approved, go through the buying process, and move into your home. You’ll be responsible for maintaining the house, paying property taxes and homeowners insurance bills, and more.

And since homeownership costs are even higher lately (thanks to higher home prices and higher mortgage rates — a true double whammy of expenses), it’s even more worthwhile to take the time to think and plan before jumping into buying a home.

Back in late 2021 and early 2022, my plan was to buy this year, but I have since rethought that plan. And while I’m disappointed, I know it’s the right move based on the housing market as well as my own finances. Here’s why it’s great to wait on buying, if you’re able to.

1. You can improve your credit

This first reason to wait on homeownership is a biggie. One of the best ways to save money on an eventual home purchase is to go in with your credit in the best shape possible. Why? The better your credit score, the lower the interest rate you’ll qualify for on a mortgage loan. You can also shop around for multiple quotes from different lenders to ensure you’re getting the best deal possible.

By waiting, you’re giving yourself the time to improve your credit score. This three-digit number has a major impact on your financial life, and thankfully, you can raise it in a few different ways. If you pay down debts, especially credit card debt, you’ll lower your credit utilization ratio (to improve your credit score, ideally you should only be using 30% or less of your available credit). Your payment history makes up 35% of your credit score, so if you’ve been a bit lax about making on-time payments on your debts, now is your chance to build better habits and watch your score improve.

You can also pull your credit report (available for free every week through the end of 2023) and comb through it for errors. If you find a mistake (such as a debt you paid off showing as delinquent, or even someone else’s credit information), you’re entitled to have it removed, which will boost your score.

2. You can save your down payment — and an emergency maintenance fund

In addition to a higher credit score, the other thing you’re going to want going into a home purchase is cash savings. While it isn’t an absolute requirement that you make a 20% down payment on a home, if you are able to do so, you will avoid being charged extra for private mortgage insurance (PMI) on a conventional loan or mortgage insurance premiums (MIP, confusingly) on an FHA loan. Plus, going in with a larger down payment means you’ll be borrowing less and therefore be less of a risk for your mortgage lender. This could even qualify you for a lower interest rate. As they say, you gotta spend money to make money.

In addition to having a down payment saved, you’ll need money for closing costs (usually amounting to 2% to 5% of the cost of your home). You might also want to have some cash savings to cover any expenses you incur on your new home soon after buying it. If you decide to repaint, for example, it’ll be nice to be able to pay those costs outright rather than going into debt to fund them. Do your future self a favor and avoid becoming flat broke after purchasing a home.

It’s also crucial to have an emergency maintenance fund saved up. Remember, when you sign (again and again and again) all that paperwork to officially close on your home, it’s your responsibility. If the roof caves in or the hot water heater explodes, it’s up to you to cover the cost of repairs and replacements. And even if a homeowners insurance policy covers some or all of your repair costs on certain home mishaps, you’ll still need to supply the cost of your deductible.

3. You can strike when the time is right

Finally, if you wait to buy a home, you can jump into the process when the time is right for you to save money. Not many people buy during the winter months, so you might find a deal (and less competition) if you do so. You could also position yourself to be ready to move forward on getting a mortgage pre-approval when rates drop.

Ultimately, hitting the brakes when you feel ready to buy a home can be disappointing. But with such a large expense, it’s a great move to give yourself every chance to succeed. Waiting — and taking actions like improving your credit and saving more money — can give you that.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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The latest unemployment data makes stimulus relief unlikely in the near term. 

Inflation has been hammering consumers for well over a year. And at this point, a lot of people are tired of raiding their savings and racking up debt on their credit cards just to do basic things like pay their rent and put food on the table.

Last year, the federal government did not issue any stimulus aid, though some states stepped up to send relief checks to qualifying residents. But if you’re wondering whether a 2023 stimulus check is likely, so far, the answer seems to be “no.” In fact, recent unemployment data makes it even more clear that a stimulus check is something Americans might need to write off in the near term.

Jobless claim are decreasing

In the past, lawmakers have turned to stimulus checks at times when unemployment was rampant, and when the economy clearly needed a boost. Stimulus checks were issued during the Great Recession that lasted from 2007 to 2009, and they were also issued at several points during the pandemic.

The reason stimulus checks did not come into play in 2022 was that the economy had recovered from the pandemic by then. For all of 2022, unemployment levels remained low. And while some economists may have feared that jobless rates would start to tick upward in 2023, so far, we’re not seeing that.

In fact, the Bureau of Labor Statistics just released data for the week ending Jan. 14. That week, weekly jobless claims came in at 190,000, representing a decrease of 15,000 from the previous week. All told, the four-week moving average for jobless claims was 206,000, a decrease from the previous week’s 212,500 jobless claims.

In other words, the unemployment situation has not gotten worse in January. Obviously we’re not done with 2023, and a lot could happen over the next 12 months. The point, however, is that based on the unemployment data we have, consumers should not expect a stimulus check from the federal government anytime soon.

Coping with inflation without a stimulus check

If you’re having a hard time paying your bills due to inflation, you’re not alone. But before you resign yourself to having to deplete your savings or rack up a mountain of debt, look at other ways to make things work financially. That could mean cutting back on a few expenses or taking on a side hustle.

All of this positive job market data tells us that it’s still a good time to go out and pick up work on the side. That extra money could make it easier to cover your bills until inflation drops to a more moderate level and living costs start to decline to a more notable degree.

And to be clear, inflation has been on a decline since peaking in mid-2022. So there’s reason to be hopeful that the cost of living will subside in time.

But we may not get there for a while. And there may not be a stimulus check anytime soon. So the best hope for those who are struggling is to get as creative as possible with their finances while seeking out added opportunities to earn money.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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