February 8th, 2012
Broke Gal in NYC, Part 5: Love (of Fiscal Goals) is in the Air
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Welcome to the “Broke Gal in NYC” blog series! For the next six months, we’ll be following Kate from the Broke Gal in NYC blog in her progress to pay down debt, make a career change and do it all in a financially savvy way!
January was another great month where I took the opportunity to evaluate my financial goals and came up with a plan for 2012. I paid for my move completely out of my savings so I didn’t incur any more debt, which was great. I decided to take the ReadyforZero New Years Challenge which meant that I would not use my credit cards and would put 10% more towards my debt.
Thus far, I’ve been credit card debt free since October 2011 and have started paying my student loans, which are currently deferred. I am opting to pay the accrued interest monthly and put any extra towards the balance on my biggest, highest rate loan of $15,000. I have currently paid $500 into it, bringing my total balance down to $36,500. It doesn’t seem like much, but I keep telling myself that the journey to being debt-free is a long one, and it is important to pay off debt while balancing other goals like investing and saving.
I decided that I wanted to start investing, and after comparing several microfinance and peer-to-peer lending I decided on Lending Club, which offers good returns and has less volatility than the stock market. Currently, I have invested $250, and my goal is to invest at least $800 by July. My returns are projected to be at around 15%, after fees, which is far more than I was getting in my high interest savings account.
It’s Tax Time!
Now, I’m currently waiting on the last of my tax forms so I can file in the very near future, and I’m currently reviewing my deductions to make sure I can either get the maximum refund or owe as little as possible.
Taxes can seem overwhelming and scary to most, but with some research it’s really not too frightening. The most important part is to know what kind of income is taxable, what deductions you may be eligible for, and having the receipts to justify them. For example, unemployment benefits are taxable income, and unless you opted to have money withheld, you will owe the government. The same goes for school scholarships, stipends, fellowships, and other educational incomes.
However, you can deduct job hunting expenses, mileage, and if you moved more than 50 miles for a new gig, moving expenses. In addition, the government just extended the American Opportunity Tax Credit through 2012 which is credit of 100% of the first $2,000 and 25% of the next $2,000 paid for educational expenses. There is also the Lifelong Learning Credit, which is 20% of up to $10,000 in qualified undergraduate or graduate expenses, up to $2,000. Make sure to review the IRS’ website to check if you are in fact eligible for these credits.
Kate’s February Money Tips:
- Check and double check. if you haven’t filed your taxes or are in the process of filing, make sure you’re getting the maximum deduction and are declaring all your income. If you feel lost or overwhelmed, check with a tax professional. If you make $50,000 or less, you should be qualified to for free assistance through the IRS Volunteer Income Tax Assistance (VITA) program. The IRS’ website has a list of qualifications for this service and who to contact for assistance.
- Review your New Years resolutions. many people, me included, made financial resolutions for 2012. February is a great time to review and recalibrate those, if needed. Maybe your income has changed and you need to reduce your debt repayment or savings plan, or maybe the opposite has happened and you need a greater challenge. Either way, see if you’re on track and if not, come up with a plan to stay fiscally sound this year. There is no point in having unrealistic goals or not aiming high enough. If you feel as if you are not making headway on your goals or are overwhelmed by your finances, ask for help! Friends, bloggers and non-profit credit counseling agencies can answer your questions, listen to your concerns, and help put you in the right direction and get a handle on your money and spending.
- Reward yourself. filing your taxes is a great way to see what your income has done in the past year. For me, my income has gone up from $20,000 in 2010 to $26,000 in 2011, which makes me really proud. If you’ve seen a decrease in income, look at other ways you’ve succeeded such as reducing spending, paying off debt, and being generally more fiscally savvy. Even staying afloat if you’re underemployed or unemployed can be a big accomplishment. Come up with cheap and simple ways to reward yourself for working hard and staying on track financially Since I have an epic sweet tooth, a cupcake or slice of cake from a local bakery is a great reward for me.
Kate’s February numbers:
Debt: $36,500 in student loans
Monthly income: $2,000
Investments: $250 (New!)
Justine’s February Goals for Kate:
Each month, Justine, Credit Karma’s Credit Advisor, will give Kate three small goals to work on before next month’s update. We’ll see how she’s progressed in next month’s post.
Looking good in the New Year! Glad you’re sticking to being debt-free, and diversifying your financial profile with investments was a great move, especially as you’re experiencing some influx in your income. Let’s check out some next fiscal steps for you:
- Do now: Diversify investments. With Lending Club under your belt, have you thought about diversifying your financial portfolio to also include stocks? While investing might sound scary, it’s one of the best financial steps for 20-somethings to start early especially as their income grows. Consider a beginner-friendly online brokerage firm like Scottrade or Tradeking, or check out Betterment.com which provides an easier, more automated way to invest.
- Do continuously: Boost your savings! While you’re allocating money towards investments, are you also pumping up your savings? While investments allow you some room for risk, savings accounts give you a stable and FDIC-insured place to store your money. In what ways can you boost your regular savings allocation by $20, or $50, or $100?
- Just for Kate: Rewarding yourself for keeping financial goals is a fantastic way to keep yourself motivated (as long as that reward isn’t a giant shopping spree). Add it to your financial plan, and you have yourself a well-balanced and satisfying way to maintain fiscal happiness in the long run. Have you set up a discretionary “fun” budget yet? Or do you have any long-term savings plan for a significant future reward, such as a vacation or new car? Think through ways to add something wonderful and positive for you to work towards, while also being fiscally responsible.