If you have school-age kids, the first half of September can be so busy that you may have missed certain financial deadlines -- for example, third quarter estimated taxes, due this past Monday.
If this is you and you’re required to pay them but didn’t, I would suggest you stop reading this and get to it!
If you made your payments on time, congrats! Had I been your personal finances teacher, that would just have earned you a B+.
What, you protest, only a B+?! Why not an A??
Just making the payment on time is the equivalent of turning in a homework assignment when due. It’s commendable but doesn’t necessarily go the extra mile to warrant special recognition.
Of course, unlike our kids who have to worry about report cards, we’re not graded on how we manage money, at least not directly. Thank god, or I suspect many of us would just barely pass, let alone make it into the Ivies of Personal Finance.
But if we were to be graded, to earn the highest possible score on a financial task such as this, you would need to do one more thing in my opinion.
Show. Your. Work.
When it comes to personal finances, “showing your work” means you had actually planned for the event – that you knew in advance it was coming, how much was due, and had consciously been taking steps to set aside that amount.
In my opinion, you don’t earn an A if you mindlessly write a check with a vague feeling that there’s enough money and then breath a sigh of relief that there is.
Just like we would hope our kids don’t guess on their assignments this school year and instead, that they prepare, plan and think through them, we can apply the same diligence to our financial goals.
Of course, there are those who are confident in their level of wealth and savings that they really don’t think they have to plan for these types of outflows, or they can pay to have someone else – an accountant, advisor, etc. – to keep track for them.
While that’s true, it’s similar to a senior who’s already gotten into college. You certainly have more leeway to enjoy yourself but hopefully you still go to class once in awhile and don’t completely coast, because there’s still a lot of useful learning to do!
With that, here’s hoping that the school year is starting off great for you and your kids.
And p.s. For the future, here are some “Cliff Notes” for “showing your work” and preparing for upcoming tax payments:
1) If you don’t know why you owe estimated taxes and how the payment is calculated, it might be useful to meet with your tax advisor. Generally you owe estimated taxes if your withholding does not cover 90% of your tax liability, or if you are self-employed, though there are many exceptions and further requirements for each.
2) Mark the dates for each payment in your calendar. I usually do this when I receive my tax return in April and I usually schedule them a week before they are due to give me time to double-check account balances.
3) If you have substantial liquid savings, earmark a portion ahead of time for taxes. If you know you’re going to need to sell investments, make sure you review them well in advance (at least one month) so you can determine a selling strategy. You may want to seek the advice of a tax or financial advisor.
4) If you do not currently have savings/investments to cover the taxes for the year, set aside money each paycheck to go toward these taxes. It may also be worthwhile to see if you should withhold more from your paycheck.
~Jennifer Faherty is a Certified Life Coach, specializing in helping women find their passion and develop a healthy relationship with money. She can be found at www.jenniferfaherty.com or on Twitter @jenniferfaherty.