2012 Taxes and Paying Loans
I just finished filing my taxes last week and received my tax returns for the year, netting about $1200 in refunds. If you file your own forms, tax season is a convenient time to check out your finances. By spending a little extra time to review the various tax documents, you can check to see if you are headed in the right direction. Although I don’t have a ton of interest in being wealthy or living lavishly, I keep on top of my assets and debts so I don’t have to worry about paying bills on time.
Regardless of my increased debt total in 2012 due to purchasing a home, I am in a much better financial situation than last January. By the end of 2011, I established an emergency fund and added to both my retirement and health savings accounts. The key to success was building a budget and sticking with it for the simple goal of being debt free as soon as possible, while maintaining my desire to travel.
When I graduated from University of Michigan in the spring of 2010, I left with $30k in student loans and very little savings. Since then I have paid off just over $5k of the principal amount. I am satisfied with the progress, but I want to decrease the repayment period even further this year. To do this, I recently increased my automatic monthly payments past the minimum and plan on making additional payments when possible. These extra payments will come from cutting my discretionary income and changing my lifestyle. This year should be much easier after having settled into a more permanent home.
The plan is to pay off student loan debt and then work on the mortgage. The student loans have higher interest rates and there is no way out of paying them whereas mortgage payments will slowly build equity on my loan which can be sold off at a later date if necessary. In my eyes, the mortgage payment is an unavoidable expense because if I wasn’t owning I would still be renting for the same monthly fee. The one thing to note, student loan interest is tax deductible and is separate from your itemized or standard personal deductions.
As I continue working toward a more minimalist lifestyle, I want to work on owning little and owing nothing. Living debt free is a luxury that I hope to enjoy in the near future.