PLAN AHEAD: Financial Stress is Heavy – It Helps to Have a Plan

by Ramiro Marmolejo

If you were to name the top three sources of stress in your life, there’s a good chance that one of them would be financial. Money can be a tremendous source of stress, as can be all the things connected to our financial lives. Because all stress, regardless of the cause, directly affects our health and well-being, financial wellness deserves some attention.

One of the foundational elements of financial wellness is having a financial plan. It’s what helps you see the big picture, and what helps you set long-term and short-term goals. When you have a financial plan, it’s easier to make financial decisions and stay on track to meet your goals. It can give you peace of mind, which reduces stress and anxiety.

A well-rounded financial plan should include your current financial position, investment planning, retirement planning, tax planning, protection planning and estate planning. Each piece of the plan involves a lot of discussion and decision-making, which is why working with a trusted financial professional can be helpful.

Tax Planning

This time of year, many people are focused on their taxes, which are due this year on April 18. There have been a number of changes in the tax code that could make filing taxes for 2015 a bit more complex than previous years. Most filers are concerned about deductions, and this year it could be particularly difficult to know which deductions are available to help you lower your tax liability. Many taxpayers either miss or don’t fully utilize deductions for the following: 

  • Student loan interest
  • Out-of-pocket charitable contributions 
  • Moving expenses to take a first job 
  • The child care tax credit
  • New points on home refinancing 
  • Health insurance premiums
  • Home mortgage interest
  • Tax preparation services
  • Contributions to a traditional IRA

This is just a small list of available deductions. The deductions available to you are unique to your particular financial situation, just as the challenges in other areas of your life are often unique to your individual situation. When you have a specific medical issue that needs attention, you most likely consult a medical professional. Or when you have a specific fitness or wellness goal that you want to obtain, your chances for success are much better when you consult and work with a professional. The same is true with your financial life, which is why a financial planning professional or a tax professional may be helpful.

Quick Tax Lesson

As you’re looking at your tax situation this month, it might be helpful to understand a bit more about some basic tax-planning concepts that involve where you put your money. Generally, you have three choices: Taxable now, tax deferred (postponed) and tax free. Examples of taxable now are bank savings accounts, money market savings accounts, and short-term certificates of deposits (CDs). With taxable now options, you will pay income taxes on the interest in the year it was earned.

The second is tax deferred, or tax postponed. Examples of tax deferred include things like a 401k, 403b or traditional IRA account. The income tax on the principal, interest and growth in the account is fully taxed when you withdrawal money from the account.

The third is tax free. With tax free options, there is no income tax on the interest or growth in the account. Examples include a Roth IRA, Roth 401k or municipal bonds.

Several factors may affect which of these—or which combination of these— is best for you. Deciding which is best for your unique situation can cause stress and anxiety, which is another reason working with a trusted, experienced financial professional can relieve a lot of that stress and help give you peace of mind.

RamiroRamiro Marmolejo is a Certified Financial Planner (CFP) and Chartered Financial Consultant. He has been in the financial services industry for 20 years serving individuals and business owners. For more information about Marmolejo, visit www.wealthwatchadvisors.com or call 210-249-5360.

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