Thursday, November 5, 2015

10 Money-Saving Tips You Don't Want To Miss

“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

Making extra payments on your loans will reduce interest and allow you to pay them off sooner. Imagine how much more fun and freedom you can have without any debt hanging over your head. 

 

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