Financial Newsletter 9.23
Give Me An Estimate
The 3rd quarter estimated tax deadline, which falls on September 15th for most taxpayers in the United States, is a significant milestone in the annual tax calendar. This deadline marks the due date for individuals, business owners, and self-employed individuals to make their third installment of estimated tax payments for the current tax year. Estimated tax payments are a way for taxpayers to prepay their taxes on income that is not subject to withholding, such as self-employment income, rental income, dividends, and interest. By making these quarterly payments, taxpayers can avoid underpayment penalties and ensure that they are meeting their tax obligations throughout the year.
For many individuals, the 3rd quarter estimated tax deadline requires careful financial planning and calculation. Taxpayers need to estimate their total annual income, deductions, and credits to determine the appropriate amount to remit to the Internal Revenue Service (IRS) or state tax authorities. Failure to accurately estimate and pay the required amount can result in penalties and interest accruing over time. As the midpoint of the tax year, the 3rd quarter deadline serves as an opportunity to assess one’s financial situation and make any necessary adjustments to ensure compliance with tax regulations.
Business owners and self-employed individuals often find the 3rd quarter estimated tax deadline to be particularly significant, as it coincides with the final stretch of the fiscal year for many businesses. Meeting this deadline requires not only financial diligence but also organizational skills to maintain accurate records of income and expenses. For those who experience fluctuations in income throughout the year, the 3rd quarter deadline provides a chance to adjust estimated tax payments based on actual earnings up to that point. Overall, the 3rd quarter estimated tax deadline underscores the importance of consistent financial management and responsible tax planning for individuals and businesses alike.
Vacate the Premises
Building a budget for a vacation is a crucial step in ensuring a memorable and stress-free travel experience. A well-structured budget helps you plan and allocate funds efficiently, enabling you to enjoy your trip without constantly worrying about overspending. Here are some key steps and considerations to keep in mind while creating a vacation budget:
1. Destination Research:
Begin by researching your chosen destination. Understand the cost of living, currency exchange rates (if applicable), and common expenses such as accommodation, transportation, meals, activities, and souvenirs. Different destinations have varying price ranges, so gathering this information will provide a baseline for your budget.
2. Transportation Costs:
Determine how you will reach your destination and calculate transportation costs. This includes airfare, train or bus tickets, and any local transportation expenses such as taxi fares or subway passes. Be sure to account for potential price fluctuations, especially if you’re booking flights in advance.
3. Accommodation:
Research various accommodation options – hotels, hostels, vacation rentals, or even camping – and estimate their costs. Keep in mind that the location, quality, and amenities will influence prices. Consider factors like the number of nights you’ll be staying and whether breakfast or other services are included.
4. Daily Expenses:
Plan your daily expenses, including meals, entertainment, and sightseeing activities. Research local restaurants, cafes, and grocery stores to gauge average meal costs. Allocate funds for entrance fees to attractions, tours, and recreational activities you wish to participate in.
5. Emergency Fund:
Set aside a portion of your budget for unexpected expenses or emergencies. This could cover medical needs, unexpected transportation changes, or other unforeseen situations. Having a safety net ensures that your vacation remains enjoyable even if the unexpected occurs.
6. Souvenirs and Extras:
Don’t forget to allocate a portion of your budget for souvenirs and extras, such as shopping or unique experiences. However, be cautious not to overspend in this category, as it can add up quickly.
7. Budget Tracking Tools:
Utilize budgeting tools or apps to help you keep track of your expenses while on vacation. These tools can provide real-time updates on your spending, helping you stay within your planned budget.
8. Flexible Budgeting:
Be prepared to adjust your budget as needed. Sometimes, unexpected expenses may arise, or you might find ways to save in one area and reallocate funds to another. Flexibility is key to managing your finances effectively while still enjoying your vacation.
9. Pre-Trip Savings:
Start saving for your vacation well in advance. Set up a separate savings account dedicated to your travel fund, and contribute regularly leading up to your trip. This approach can help you avoid financial strain and ensure you have enough funds to cover your expenses.
10. Post-Trip Evaluation:
After your vacation, review your actual expenses and compare them to your initial budget. This evaluation will provide valuable insights for future trips, helping you refine your budgeting skills and make more accurate estimates for your next adventure.
In conclusion, creating a vacation budget requires careful research, planning, and consideration of various expenses. By following these steps and maintaining a disciplined approach to spending, you can ensure a financially responsible and enjoyable vacation experience.
Homing How-To
The home buying process can vary depending on your location and specific circumstances, but here are the general steps involved in purchasing a home:
1. Determine your Budget and Financing:
Before you start searching for homes, it’s important to determine how much you can afford. Consider your income, existing debts, credit score, and down payment. Get pre-approved for a mortgage to know your borrowing capacity. Once you have your budget nailed down, make a note to stick to it. It is easy to get sucked into the idea of paying a little more for a home because you really like it, but this is why setting your numbers in place up-front is so important.
2. Start House Hunting:
Begin searching for homes that fit your budget and preferences. You can use real estate websites, work with a real estate agent, and visit open houses to find potential properties. In today’s market, with minimal inventory out there, make sure you are casting a wide net, as many towns don’t have as many properties available as they used to.
3. Make an Offer:
Once you find a home you’re interested in, work with your real estate agent to draft and submit an offer to the seller. The offer will include details like the purchase price, earnest money deposit, contingencies, and proposed closing date.
4. Negotiate and Acceptance:
The seller may counter your offer, and negotiations might ensue until both parties agree on the terms. Once both parties reach an agreement, you’ll have a binding contract.
5. Conduct Inspections:
After the offer is accepted, schedule a home inspection to identify any potential issues with the property. You may also need to conduct other inspections like pest inspections, radon testing, etc. Work with your agent to determine the exact timeline for these inspections, but be aware that you are usually seeing them happen in a matter of days, not weeks or months.
6. Secure Financing:
Work closely with your lender to complete the mortgage application process. They will require documentation and may conduct an appraisal of the property to ensure its value aligns with the loan amount.
7. Title Search and Insurance:
A title company will conduct a thorough search to ensure there are no liens or ownership disputes on the property. You’ll also need to purchase title insurance to protect your investment. Once again, your agent and/or your mortgage lender should assist with most of this process.
8. Finalize Mortgage and Underwriting:
Your mortgage lender will review your financial documents and the property’s information to finalize the mortgage. This process is known as underwriting.
9. Clear Contingencies:
If any contingencies were included in the contract (e.g., repairs, sale of your current home), work to fulfill these before proceeding.
10. Closing Disclosure:
You’ll receive a Closing Disclosure outlining the final terms of the loan, including closing costs and monthly payments. Review this document carefully. If anything looks like it doesn’t match up with your expectations, this is the time to point it out to your lender.
11. Final Walk Through:
Before closing, do a final walk-through of the property to ensure it’s in the same condition as when you made the offer and that any agreed-upon repairs have been completed.
12. Closing:
On the closing day, you’ll sign all the necessary documents to officially transfer ownership of the property. You’ll also pay the closing costs, which can include fees for title insurance, attorney services, and more.
13. Receive Keys and Move In:
Once the transaction is complete and funds are disbursed, you’ll receive the keys to your new home. Congratulations, you’re a homeowner!
Remember that each step can involve various details and potential complexities, so it’s important to work closely with professionals like real estate agents, lenders, and attorneys to guide you through the process.
Extra! Extra! Read All About It!
Deciding whether to pay extra on a mortgage or keep the money in a savings account involves considering various financial factors. Here’s a general guideline to help you make an informed decision:
1. Interest Rates:
Compare the interest rate on your mortgage with the interest rate on your savings account. Generally, if the mortgage rate is higher than the savings account rate, it makes more sense to pay down your mortgage. If the savings account rate is higher, you might want to consider keeping the money in savings.
2. Financial Goals:
Consider your short-term and long-term financial goals. If you have high-interest debts, like credit card debt, paying those off first may be more beneficial than paying extra on your mortgage. Additionally, if you have other investments with higher potential returns, it might be wiser to allocate your funds there.
3. Emergency Fund:
Prioritize having an emergency fund in a savings account. Financial experts often recommend having three to six months’ worth of living expenses set aside for unexpected events. Once you have a solid emergency fund, you can consider paying extra on your mortgage.
4. Tax Implications:
Mortgage interest payments may be tax-deductible in some cases, which could affect the effective interest rate you’re paying. Consult with a tax professional to understand the potential tax benefits before making a decision.
5. Risk Tolerance:
Consider your personal risk tolerance. Paying down your mortgage provides a guaranteed return, as it reduces the amount of interest you’ll pay over the life of the loan. Keeping money in a savings account has a lower risk but potentially lower returns compared to investing in other assets.
Now, let’s consider a couple of examples.
Example 1: 5% Mortgage vs. 1% Savings Account
- Mortgage Rate: 5%
- Savings Account Rate: 1%
In this scenario, the mortgage rate is significantly higher than the savings account rate. Paying extra on the mortgage would likely be a better choice, as you’d save more on interest payments over the life of the loan compared to the relatively low returns from a savings account.
Example 2: 3% Mortgage vs. 5% Savings Account
- Mortgage Rate: 3%
- Savings Account Rate: 5%
Here, the savings account rate is higher than the mortgage rate. From a purely financial standpoint, it might make more sense to keep the money in the savings account, as you’d potentially earn more interest there than you would save by paying extra on the mortgage.
Remember that personal financial situations can vary, and these examples simplify the decision-making process. Also remember that savings account rates may fluctuate over time, so this is something you should be reviewing on a regular basis to make sure your calculations are up to date. It’s essential to evaluate your entire financial picture, including other debts, investments, goals, and risk tolerance, before making a decision. Consulting with a financial advisor can provide personalized guidance based on your specific circumstances.
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Armstrong Advisory Group, Inc. does not offer tax or legal advice and no portion of this communication should be interpreted as legal or accounting advice. You are strongly encouraged to seek advice from qualified tax and/or legal experts regarding any tax or legal matters relevant to you.
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The information contained herein, including any expression of opinion, has been obtained from or is based upon, sources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy, sell or hold or a solicitation of an offer to buy, hold or sell the securities, if any referred to herein.
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