How to Skimm Your Life

by The Skimm

  Try this if…you’ve done your research. Buying individual stocks on your own is risky, because you need a LOT of them to get the type of diversification you’ll find in a mutual fund or ETF. But if you buy individually, you do pay less in fees than you would for a mutual fund or ETF, since there’s no financial advisor helping you along the way.

  Does a good stock market mean a good economy and vice versa?

  Short answer: not necessarily. The day-to-day fluctuations of the stock market do not have much bearing on the economy as a whole. But over time, stock market trends will reflect the state of the economy. Think of it like a relationship: Fights here and there don’t mean you’re headed for a breakup. But if you’re fighting every day and sleeping in different rooms, it’s a bad sign. By the time the economy is in recession, the stock market will have been in a long decline.

  When should I invest?

  When the market’s on an upswing. It’s generally a good idea to get into new investments during a bull market—aka when prices are steadily increasing and you have a chance to ride that wave. On the opposite end, a bear market—when prices are steadily decreasing—is a riskier time to invest. But a lot of experts say you shouldn’t look too closely at market trends. Because the market is volatile. Billionaire and business GOAT Warren Buffett once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” Here are some other stock market scenarios.

  For when there’s a new stock on the block…

  Hear the bells? That’s the sign of an IPO, or initial public offering. It’s like a company’s stock market debutante ball. It’s the first sale of a stock by a company to the public. This is a big deal, because the price of the company’s stock often serves as a benchmark for its success. Bells are rung. Headlines are made. If you’re a new investor, it’s a risky idea to buy stock that just IPO’d since it doesn’t have a track record of success yet.

  For when you’re watching to see how a stock is performing…

  You’ll be checking out a stock exchange. NASDAQ and the New York Stock Exchange (NYSE) are the two largest ones. When a company decides to offer an IPO, they’ll typically choose one of these to host the party. NASDAQ is known for hosting a lot of tech stocks, while NYSE is known for hosting stocks from large companies with a stable record. These are known as blue-chip stocks and their name comes from blue gambling chips, the highest value chips used in casinos. Viva las markets.

  For when you want to check the stock market like you check the weather…

  Take a look at a stock index. The Dow Jones Industrial Average is the best-known stock index in the US. Think of it like the music charts but for stocks. It’s a list of 30 big-name stocks traded on either the NYSE or the NASDAQ. The index changes depending on how companies are performing. The list usually includes Apple, McDonald’s, Nike, and Visa. It’s also price-weighted, meaning that stocks with higher prices are given more importance when calculating the overall average. Insert Texas Instruments calculator here. The S&P 500 is another well-known stock index. The biggest difference between this and the Dow is that the S&P includes more companies. So while the Dow is more standard, the S&P is more all-encompassing.

  What’s a smart investment strategy?

  We can’t tell you what exactly to invest in. Because the markets are moody. And we’re not legally allowed to do that. But we can tell you some of the best things to keep in mind while investing. Note: You can and should try them all.

  For the person who never wears the same outfit in a week…

  Bring that diversification to your portfolio. Make sure you’re invested in different places—it’s less risky than putting all your eggs in one basket. Because if that one basket breaks, there will be a lot of yolks on your face. This is why mutual funds or ETFs are a popular option. It’s like buying a collection of stocks and bonds instead of picking them individually yourself.

  For the person who eats the same thing for breakfast every day…

  Being a creature of habit is a good thing when it comes to investing. Decide to invest a certain amount of money each month and stick to it. Consider setting up automatic deposits to your investment funds.

  For the person who likes to act fast…

  Beware of day trading. This means you’re buying and selling within the same day before the close of the markets. Generally not a good idea unless you have a LOT of experience.

  For the person who paints their face at football games…

  Being a fan on the sidelines is fine. But when you’re investing, you’re a player. Don’t be a stock fan. Meaning don’t buy Apple stock just because you really, really love your iPhone. If you’re so passionate about your iPhone that you’ve been following its stock for years and understand what you’re signing up for, that’s a different story.

  For when you’re worried about paying rent…

  Keep things separate. As in, don’t invest the money you saved for your “need it” expenses. One of your biggest risks in investing is needing that money back ASAP. Like wine, you want to drink (sell) your stock once it’s mature. If you’ll need that money in three to five years, maybe don’t invest it. Make sure you have other liquid funds, aka cash, available to you if you need it. This is where your emergency fund comes in.

  For when you’re wondering how to allocate your investment money…

  Try the 120 rule. Here’s how it works: 120 minus your age is the percentage of your portfolio you should have in stocks. So if you’re 25, 95 percent of your money should be in stocks while 5 percent should be in safer investments like bonds. When you buy ETFs or mutual funds, your portfolio mix should look something like that. The idea here is that the younger you are, the more risk you can take. The older (and the closer to retirement) you are, the less risk you want to take with your cash money. Investing in a target-date or “lifecycle” mutual fund in your 401(k) is the easiest way to make sure your risk level and asset allocation are right for you.

  theSkimm: Investing is a way to make your money grow without having to earn more of it. It’s a no-brainer. But it’s important to put brains (yours or an advisor’s) toward figuring out which investments work best for you.

  Things That Are Tedious

  theSkimm on Taxes

  It’s taxing. Literally.

  Filing your taxes is one of those semi-painful things that you just have to get done. It’s less painful if you know what exactly you’re filling out and how to avoid effing it up.

  What dates do I need to know?

  Ready, set, mark your calendars. There are some big dates to circle.

  April 15-ish: The Big One. Usually. Tax Day almost always falls on the 15th. Key word: almost. Sometimes it shifts a day or two based on holiday and weekend timing. So make sure to double-check the date. This is the last day to file your tax return. If you need to hit snooze, file an extension by this day. This is also the last day to get as much as you can into an IRA (reminder: a way to save for retirement). If you’re self-employed, today’s the day you have to pay the government your first round of estimated taxes for the year.

  June 15-ish, September 15-ish, January 15-ish: If you’re self-employed or doing contract work, mark these days in your cal in addition to April 15. Not so fun fact: You have to pay the government (both the IRS and the state you’re working in) estimated taxes every quarter.

  October 15: Oh hey, procrastinators. You knew this day was coming. If you asked for a six-month extension to file your tax return, here we are.

  Thing to know

  An extension is an extension on how much time you have to file, not how much time you have to pay. You still need to submit an estimated payment by April 15 no matter what.

  How should I get organized?

  Starting in January every year, keep an email folder or a physical folder (if you’re old-school) with all of your receipts that may qualify for itemized deduc
tions. We’ll get to the breakdown of all of those. But know you’ll want to save things like charitable donations, tuition expenses, mortgage statements, and child care bills. Save the receipts to the folder in real time so when tax season rolls around, everything is already in one place.

  When should I start getting my tax forms together?

  Experts say ASAP. But we know that we’re all busy keeping and breaking our resolutions all of January, so we say start gathering it all in late February.

  Speaking of forms…which ones should I start with?

  Fine form. Here are the first two that should be on your radar.

  For when you’re starting a new full-time job…

  W-4 the win. This is the form you fill out when you start a job so your employer knows how much to withhold from your paycheck for federal and state taxes. Your employer will have it on file. You’ll be asked to fill out how many allowances you want to claim. Putting one or zero is really personal preference. If you claim zero, more taxes will be withheld per paycheck but you’ll likely get more of a refund after you file your taxes. If you claim one or more allowances, you’ll send less to the gov with each paycheck, but may have to pay more later on. Procrastinator’s delight.

  For when tax season’s coming up…

  Easy as 1, W-2, 3. This is the form that shows how much of your paycheck your company withheld to send in estimated taxes to the government. You should have gotten a copy in the mail in January. If you can’t find it, ask your company to send you another one. Or check to see if you’re set up to receive it digitally. You’re going to need to reference this when filing your return. Note: If you switched jobs during the year, you’ll need a W-2 from each company you worked at.

  OK, it’s crunch time. Which forms do I need to actually file?

  Depends who you are. Here’s how different people should get in fine form.

  For when you have a full-time job…

  You’ll need a 1040. Aka the long one or the individual tax return. This is the form where you put down what you made that year and some details about your personal situation. That helps you and the gov settle who needs to Venmo whom. And how much. Psst…if you talk to anyone about this, call it a “ten forty,” not a “one oh four oh.”

  For when you freelance or have a side hustle…

  Look out for a 1099. Whoever is paying you during the year may send you one. It’s kind of like a W-2, minus the withheld taxes. So you may need to pay taxes on it when you file your return. But you can reduce this income by claiming expenses you incurred along the way. For example, if you freelance in entertainment, you may be able to deduct the cost of Netflix or Hulu. Same for a news subscription if you do contract work at a media company. File it all under “research.” Brb, need to binge some research.

  Also, you may get other 1099s for interest on investments or dividends, aka a portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock. Psst…say “ten ninety-nine” instead of “one oh nine nine.”

  For when you like to leave things to the last minute…

  If you need an extension, you’ll need to fill out a 4868. This is basically your permission slip to take your time. Remember: You have until October (usually October 15) to get it done. Circle that date on your calendar.

  I have all my forms. Now what?

  Fill out the 1040 and send it off. There are a couple of ways to do that: by mail, on the IRS website, through sites and apps like TurboTax and H&R Block, or—if you decide you want more help—an accountant can take care of it.

  Do I need an accountant, or can I do this myself?

  Accountants can be really helpful. But also expensive. It comes down to how complex your money situation is. Do you own your own biz? Own a property? If so, you might want to consider an accountant to help make sure nothing falls through the cracks. If not, there’s software out there to help you prep your returns and file.

  Wait, back up. How do I even read this thing?

  Slowly. There are a few sections of your 1040 that you should mentally highlight.

  Income and personal info section

  Where you fill out who you are and how much you made the past year. This part is the most straightforward.

  Deductions section

  Where the gov lowers your taxable income based on your status or specific expenses you paid during the year.

  Tax credits section

  Where the amount you owe the gov is reduced by certain credits.

  How do I make sure I get the biggest discount?

  First things first: Don’t lie. But make sure you get everything you’re qualified for. This is where exemptions and deductions come in. Exemptions are tax discounts you can get right off the bat for just being you. You can get more by having plus-ones you’re responsible for, aka dependents. That includes kids, or parents or grandparents you’re taking care of. If you’re declaring someone as a dependent, you’re going to need his or her Social Security number or ITIN (Individual Taxpayer Identification Number). Make sure you have this info.

  Whatever your filing status is on the last day of the year is your status for the entire year. So, if you’re not yet married on the last day of the year, you can’t use a married filing status—even if you get married early the next year before you file your tax return. The same is true of children that may qualify you for tax benefits. If you’re having a baby in the winter, cross your fingers that you’re changing diapers by December so you can claim those child-related benefits (like the Child Tax Credit) for the entire year.

  What about deductions?

  Deductions get a bit more complicated. There are two kinds: standard and itemized. Here’s the difference.

  Standard deduction

  The prix fixe of taxes. You get a flat-rate reduction of your taxable income based on your filing status. There are five different types of statuses: 1) Single, 2) Married Filing Jointly, 3) Married Filing Separately, 4) Head of Household (fancy way to say single parent or someone caring for an adult) and 5) Qualifying Widow(er). If you choose to go the standard route, you’ll pick your status and get a, yup, standard discount based on your choice. Pros: Simple, no extra work, and the IRS pinkie promises not to ask for all your receipts if they audit you. Cons: Depending on your situation, you could be missing out on itemized deductions that save you cash money.

  Itemized

  The à la carte of taxes. This is trying to pick up alllll the deductions you can. You get ’em for a wide range of things like giving to charity, large medical expenses, mortgage interest, real estate taxes on your home, or state income taxes (usually paid through your W-2). If you do the math, and the itemized deductions are more than the standard deduction, you could end up saving dollar bills.

  What are some itemized deductions I should look out for?

  Medical

  Beginning in 2019 you can deduct medical expenses that exceed 10 percent of your adjusted gross income. So if your adjusted gross income is $50,000 and you spent $5,500 in medical expenses during the year, you could deduct $500 ($50,000 x 0.1 = $5,000). So that $500 leftover is the amount that exceeds 10 percent.

  Interest

  Mortgage interest is deductible for home loans up to $750,000.

  Charitable donations

  If you’ve given to charity you can deduct that amount (up to 50 percent of your income). Paying it forward pays off.

  Home office deductions

  If you WFH, you can claim some special deductions. Because the tax code loves to be confusing, the rate is $5 per square foot for up to three hundred square feet of space. But if you use this space as a bedroom or child care room slash office you can’t claim it. It has to be your primary office.

  State income taxes

  If you pay taxes to the state on your income, that can be a deduction on your federal taxes. If you pay the state property taxes for things like real estate, you can
deduct that as well. In total you can deduct up to $10,000.

  Casualty, disaster, and theft losses

  These can be deductible if the president declares a federal disaster in your area.

  What about credits?

  In school and in life, extra credit always wins. Tax credits are actually better than deductions. Instead of a reduction of your taxable income, they’re an actual dollar-for-dollar reduction of the amount you owe. Here are a few of the credits to look out for: