“It’s
not your salary that makes you rich; it’s your spending habits” – Charles A
Jaffe
Have
you ever looked at your bank account and it’s a lot lower than you expected?
You aren’t alone. More than half of Americans feel they have financial problems
and are underprepared for financial emergencies. It can be difficult to figure
out where to start, but we’ve got 10 tips to help get your finances on track.
Budget
Bend,
Don’t Break! Learning how to budget is the first step on the path to financial
stability.
A
budget is a breakdown of what you have coming in each month versus what you’re
spending. The goal with a budget is to know exactly where your money is going
so you can make sure it fits your needs. Monitoring your budget takes
time and effort, but it can help you avoid the dreadful feeling that comes with
not having enough money when you need it.
Emergency Fund
The
rule of thumb is to save enough to cover three to
six months of living expenses. The reality is: it depends on your
situation.
Your
emergency fund is money set back to pay for expenses and debt should your
worst-case scenario happen to you.
Retirement Plan Contributions
Would
you turn down free money!? A 401(k) or similar employer-sponsored retirement
plan can be a powerful resource for building a secure retirement. Many
employers will match part of your contributions, which means: Free Money!
Don’t
ignore low income earning years either. If you are making less than
$30,500($61,000 joint) you may be eligible to receive a tax credit for
retirement contributions that you make – up to 50% of your contribution.
Section 125 Plan
Medical
and Childcare expenses add up quickly, but if your employer offers a Section
125 Plan, you could be saving a minimum of 25% in taxes on those expenses.
A
Section 125 Plan allows you to pay medical and childcare expenses pre-income
and employment taxes. The employer plan offers the largest savings, but there
is also a tax credit available on your tax return, if you don’t use a 125 plan.
Eliminate Personal Loans
Plain
and simple: Interest on personal loans is non-deductible. This means you
are not getting any benefit by paying interest on these types of loans.
The
faster you pay off loans that have non-deductible interest, the more money you
will be saving.
Buy a House
Once
you have enough saved to put 10% toward a down payment, buy a house as soon as
possible.
Banks
will normally allow you to borrow up to 90% of the value of a home. But, beware
of PMI! You can avoid paying mortgage insurance (PMI) by using an 80% mortgage
and a 10% home equity loan. This will also lower your monthly mortgage
payments!
Health Savings Account
Paying
for your own health insurance? Consider buying a high deductible health
insurance plan and contributing to a Health Savings Account (HSA).
A
high deductible health insurance plan can cost less than other health plans,
covers the entire family under one deductible per calendar year, and pays 100%
of covered expenses after the deductible is met. It also makes what would
likely be nondeductible out of pocket medical expenses actually become
pre-tax.
Contributions
to a HSA are tax deductible and can be used toward your out of pocket medical
costs. With a HSA, distributions (including earnings) are not taxed as long as
you use them for qualifying medical expenses. The HSA account is
yours and can be used for your family’s medical expenses anytime in the future.
Roth IRA
Holding
off on saving for your retirement now – in the hopes of making up for it
later – could be the costliest mistake you ever make.
Roth
IRAs offer tax-free growth on earnings, qualified distributions are
entirely free from tax, and contributions can be withdrawn any time. You can’t
afford not to have one – unless you make too much money at which point the IRS
does in fact tell you that you can’t have one!
Deductible IRA
Really
need a tax deduction?
Deductible
IRAs allow you to make contributions that are deductible on your tax
return. The rules get a little tricky if you have a retirement plan at
work but you should still see if you are eligible. Earnings are tax-free,
but watch out for distributions because they are taxable and required
once you reach age 70!
Eliminate Debt
