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Understand Your Finances: Take a Look at Your Taxes.

Updated on August 21, 2013

Open Up Your Eyes to Your Financial Situation: Do Your Own Taxes

One of the best ways to gain an overall understanding of your personal financial situation is to do your own taxes. Figure out your income before and after taxes are taken out, figure out how much you really owe on your mortgage, calculate your true yearly medical expenses, understand the amount of interest you are paying on your loans, track your investment yields (or losses); these are just a handful of the things you will learn if you do your own taxes.

What You Can Learn From Doing Your Taxes

1. Figure out your Income

Let's start at the very beginning here. Gather your W-2 form(s) and look at the numbers. You will find listed on this form your actual salary (before taxes). Believe it or not, many people may not know how much they have made in the last year. Perhaps it is because their spouse or accountant handles the finances or perhaps it is just because they don't care or have never looked.

You might be surprised at the number you find. "Did I really make that little?" you might think. Or, " Where did all that money go?" might be a good question for you to ponder.

Maybe your findings will lend to a well deserved pat on the back for making it on so little.... or maybe it will lead to a helpful discussion on managing your finances more responsibly.

2. Figure out several things about your mortgage:

How much you owe on your mortgage and How long it is going to take you to pay it off.

Your mortgage interest statement will come to you in the mail along with other tax documents. On this form, you can see how much money you have paid in interest on your loan for the calendar year.

Mortgage interest is tax deductible, but other than that there is nothing wonderful about this number.

How much of your monthly payment goes toward the principal and how much is just an interest payment? If you are toward the beginning of your loan, you are probably paying a whopping amount of interest, so the amount of your payment that actually goes into your home is minimal. If you find this to be the case, and you are in the position to do so, you may want to overpay your mortgage amount each month so that you can knock down your loan amount faster. Making the equivalent of just one extra mortgage payment a year can literally save you YEARS off of your total loan amount.

Usually on the back of the documents your mortgage company sends you, you can find out how many years left in the life of the loan. Are you closer or farther away from paying off your house than you thought? Take a look and figure it out.

3. Calculate and reevaluate your medical expenses.

Not new news to anyone, but medical expenses have gone up for most, practically all, of us. Do you know how much you spent in medical expenses this calendar year? If you are doing your own taxes, you will probably want to find this out.

Take a look back through your checkbook, your credit card bills, etc. and highlight each expense listed for hospitals, medical facilities, prescription drugs, and medical equipment. Also take a look at recent pay stubs to figure out how much of your paycheck your monthly medical insurance is taking out (if you carry insurance this way).

Finding out how much you have spent on medical services, equipment, and medicine is good for a couple of reasons. 1. If the amount you spend is a certain percentage of your yearly income (this number varies by your tax bracket), medical expenses can be tax deductible. This means you may be able to claim these expenses and get a break back on your taxes. 2. knowing how much you spend yearly may be shocking enough to lead you to explore that big medical manual your employer/insurer gave you about in/out of network doctors, approved/denied claims, etc. Maybe a simple switch of doctors or preferred faciility for treatment could save you thousands. Some doctors and networks provide services at a cheaper rate for certain insurers. Basically, insurance companies cut deals with certain docs and hospitals: the docs and hospitals appreciate the business and the insurance companies appreciate the discount. Try using these.

Many employers have set up medical expense accounts that you can join. These accounts are health savings plans and vary by employer/insurer, but most allow you to set aside money from each pay check (tax free) to put into an account to be used toward any medical expense you may encounter later on. Set aside some money and when you have medical bills coming at you, wallah, tap into your account and pay your bills tax free. Not a bad gig.

4. Take a closer look at your investments.

The stock market fluctuates. Everyone knows that. But when was the last time you took a good look at what your investments are yielding (or losing) you?

Tax forms will be sent to you sometime around the beginning of each calendar year. Take a look at these and see what the numbers show. Are some of your investments plummeting? Maybe you should seek advice as to whether to reallocate these funds. Are some of your investments holding steady even in a difficult market? Perhaps it is time to try to bolster that fund. Maybe you'll choose to do nothing different at all after learning more about your investment summaries. Regardless, it is just plain smart to know where your money is and what is happening to it.

Similar Money Related Articles from the Same Author:

Reasons to Have a Small Mortgage

What You Should Know About Your Loans


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