One Easy Way to Slash Taxes

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Reduce your taxes and increase your savings.  Sounds almost a little too good to be true right?

It’s possible, it’s easy, and I just did it and so can you.

Today is the final day for you to file your taxes for this year.  Did you pay more in taxes than you would have liked?  Do you want to lower your tax bill for next year?  If so, then here is how to do it:

Increase your 401k contribution to your company’s plan.  What percentage of your salary are you contributing to your 401k currently?  Bump it up.  By increasing your pre-tax 401k contribution to your plan you are in effect reducing the amount of income you take home, thus reducing your tax burden.

I recently increased my pre-tax contribution percentage by 8%, and found that I will save roughly $1700 this year on my taxes.  It’s that simple.  Increase your savings, reduce your tax burden.  This offers 3 key benefits.

Benefit 1:

You lower the amount of taxes you will be paying for the year.

Benefit 2:

You increase the amount of savings you will have at retirement.  The more you save now, the more you will have later.

Benefit 3:

Because you don’t see the additional money you put into your 401k plan on your paycheck, you won’t spend it, and most likely you won’t miss it.

 

Budget Smart, Invest Wise

 

Buffett’s 7 Investment Tips

Most of us are familiar with famed investor Warren Buffett.  He has amassed a fortune of over $60 billion in his lifetime.  He is known for picking great investments and sticking with them for the long run.  In a world where it is easier than ever to buy and sell stocks in the blink of an eye, day-trading has become more and more popular.  However, Buffett has always been outspoken about the negative effects of buying and selling equities over the short period.

So what does Warren think people should do to create wealth for themselves?  The link below tells you just that.  While creating a net worth equal to that of Buffett’s is highly unlikely, it is very easy to take just a few steps in the right direction to follow Buffett’s advice.

http://finance.yahoo.com/news/warren-buffett-best-investing-advice-201019702.html

The Retirement Crisis and How to Avoid It

There is a retirement crisis currently underway.  Why is this?  Because people don’t save during their working years to fund their golden years.  The Economic Policy Institute recently released are startling report about American’s retirement savings.

The Retirement Revolution That Failed: Why the 401(k) Isn’t Working

The graph above shows the median account values of retirement savings for a given age group.  The overall median among all age groups is a meager $5,000 while the median value for those closest to retirement, 56-61 age group, have only $17,000 saved up.

To put this in perspective, I am 26 years old, and have been employed full time for less than 4 years.  In my retirement accounts, which include a company 401k, a rollover IRA and a Roth IRA, I have $47,589 saved.

Retirees are relying on Social Security by larger percentages these days.  Nearly 2 out of every 3 retirees relies on Social Security for at least 90% of their retirement income.  No matter your current age, there are ways to insure that you are setting yourself up for success in your later years.  Here are the steps I followed to have my current retirement savings:

  1. Fund a Company 401k and get full employer match.  This should be a no brainer.  Fund your company’s 401k plan at least to the amount that will maximize your employer’s match.  It’s FREE MONEY.
  2. Start an IRA.  I prefer a Roth IRA because it is money you will never be taxed on again, and is a good complement to a 401k (which you will pay income tax on in the future).  Go to Vanguard’s website and get one started in a matter of minutes.
  3. Maximize out your 401k.  If you are under 50, you can contribute up to $18,000 of your pre-tax pay to a 401k.  If you are over 50, you can contribute an additional $6,000.  See if you can contribute an additional 1 or 2 percent each year until you reach the maximum.

Planning for retirement is now more important than ever.  Many don’t have pensions to rely on anymore, so the responsibility is now on YOU to determine your retirement destiny.

Budget Smart, Invest Wise

Should I Save or Invest?

Why not do both?

Whether you save or invest your money really depends on the financial objectives you are trying to accomplish.  Saving, usually refers to putting money away where it can be accessed quickly and easily for an impending purchase.  On the other hand, investing should tie up your money for a length of time, but it will also produce better returns.

TIAA-CREF’s video below breaks down the difference between the two.  After watching, decide what financial goals you are trying to achieve in both the short term and long term.

https://www.youtube.com/watch?v=PvKXr_mkF5s

 

Budget Smart, Invest Wise

The Benefits of a Budget

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Budgeting is an essential part to taking control of one’s financial life.  You would be surprised to know that nearly two out of every three Americans do not budget their income.

With today’s technology, it is now easier than ever to track your income and spending.  Personally, I use Google Sheets to budget.  I have the ability to access my budget on any computer with internet access along with my smartphone.  Another great way to budget is through Mint.com.  Signing up is free, and they have an app so you can update your budget on the go.

Now that you can see just how easy it is to start your budget, I will quickly lay out why you want to budget and the benefits.

  1. You know how much you make:  Ask someone how much take home income they have in a given month, you would be surprised the number of people who can’t give you a specific dollar amount.  Knowing how much you make is vital to determining how much you can save and spend.
  2. Plan Purchases:  Saving up for a vacation?  By budgeting you will be able to determine how much you need to set aside each month so you and your family can enjoy a getaway.
  3. Eliminating Debt:  This can have a two fold benefit.  Firstly, if you know how much you make, then you know how much you are able to spend, thus you can avoid spending more than you make.  Secondly, budgeting can help you set aside income every month to tackle debt, be it student loans, a car note, etc.
  4. Enjoying your money:  Budgeting allows you to feel confident about your spending habits.  It allows you to plan for purchases and should limit financial stress on your life by worry about how you are going to pay for something.

This is not a comprehensive list of the benefits, but a few of the major ones.  If you are curious of the benefits you can receive from budgeting then give it a shot if you haven’t already.

 

Budget Smart, Invest Wise

Tax Time

It’s that time of year when we begin collecting our W-2’s, 1099’s and other documents to prepare our tax returns.  For some of us there is reason to get excited about tax time.  Why?  A tax refund!

A couple years ago a car salesman told me that the car industry loves tax season.  Why exactly?  Because many people end up using their tax refunds to help with a down payment of a new automobile.

If you get a tax refund, you might view it as a “bonus”.  Unexpected money just fell into our lap.  We get the urge to spend this money on a luxury that we might otherwise have not been able to afford.  It’s YOUR money, do with it as you please, but I will offer some advice on how to spend your tax refund wisely:

Pay down Debt:  Instead of buying a new car with your refund, use it to pay down an existing car loan if you have one.  Make an extra payment or two to a student loan you might have.  Debt is an obligation you will  have to pay down eventually, so why not use the extra money to give you an extra step to being debt free.

Go on a Vacation:  Maybe you feel like you have worked hard, and you probably have.  Use the money, or part of the money, to treat yourself to a vacation.  The enjoyment and peace of mind you can get out of an experience far outweighs any “thing” you might want to purchase.  You will have created lasting memories.  Plus, more than likely, you will be more focused upon your return.

Just save it:  Suppose you are 25 years old and receive a tax refund of $1000.  If you used that money to open a Roth IRA or put it in a taxable brokerage account, you will be well on your way to creating future financial freedom for yourself.  Let’s use the following example: You take the $1000 and open a Roth IRA.  If you put in just $100 a month into that Roth IRA, then assuming an 8% return annually, you will have an account balance of well over $300,000 in 40 years.  Granted 40 years is a way off, but that money can help supplement your retirement.  You can also use the refund to build up an emergency fund or to contribute to a taxable brokerage account.

A tax refund is welcomed by everybody who receives one.  You worked hard last year, you paid a little more in taxes then you should have, now it’s the government’s turn to give a little back to you.  Treat yourself to that vacation you’ve been craving, or use it to help put yourself in a better financial situation at the beginning of the year.

Budget Smart, Invest Wise

How To Win The Lottery

As you are probably aware, the drawing for the Powerball tonight has reached a staggering $1.5 BILLION.  Many are rushing to the nearest supermarket or gas station to take part in this epic event.  A single-winner jackpot has NEVER been this high, and one person, or multiple people could have their lives completely changed by tomorrow morning.

No, this post is not about winning tonight’s Powerball jackpot.  No, I am not going to tell you how to win the lottery in this post because there is no way anyone can tell you how to win.  Your chances of winning the biggest jackpot ever are 1 in 292 million, the more tickets you buy, the better your odds, but I’ll break it to you.  You’re not going to win.  Sorry.

Despite the fact that you won’t win the lottery, you do control your own destiny to create a great amount of financial wealth for yourself.  Take the following example.  By opening a Vanguard or Fidelity account with just $1000 and contributing $500 per month to the account every month, you can have well over a million dollars to your name after 40 years.

AccountWinning the lottery and creating wealth are both results of math.  The math tells you your odds of winning the lottery are near impossible.  Math also tells you that following a simple plan can make you a millionaire.  Choose what math you want to follow.

 

Budget Smart, Invest Wise

 

Take 5 (Minutes)

I’m going to need you to Take 5.

And no, not the candy bar.  We all have 5 minutes a day that we can spare.  This 5 minutes revolves around budgeting and monitoring your spending habits.

Budgeting is a simple process when you have the right tools.  That is why I give you my free Excel spreadsheet so you can create your own budget.

I am now beginning my third year of budgeting, and I have found great enjoyment in knowing where all of my income goes on a monthly basis.  It could be because I like number a lot, but mainly because I know I’m setting myself up for financial success.

Kathleen discusses in her article how a simple 5 minute action every day keep hers on her budgeting towards her goals.  Honestly, I don’t even think it takes the full five minutes, but they don’t make a candy bar called Take 2.  Check out her article and see just how simple it is to get your money habits off to a great start in the new year.

http://finance.yahoo.com/news/habit-takes-less-5-minutes-160000540.html

 

Budget Smart, Invest Wise

 

 

Ending the Financial Year with a Bang

2015 has come to a close and with that, the end of another year of budgeting and saving.  I have many proud financial moments for this past year.  The main one being paying off my student loans.  I had ten years to pay them back, but I was determined to be free from them as soon as I could.  I budgeted and was able to pay them off in just 2.5 years.

What was your biggest financial accomplishment of 2015?

When it comes to 2016, I have a couple main financial resolutions I hope to achieve.  The first being to pay off the remainder of my car loan.  I owe less than $5,000 remaining, so this should be an easy task.  My next goal is to have a net worth of six figures before my 27th birthday (My birthday is in March, so this doesn’t leave me much time).

What are your financial resolutions for 2016?

Today and tomorrow are good times to sit back and reflect on what went well and what didn’t go well with your 2015 finances.  You can then figure out what changes need to be made to create a wonderful 2016 financial year.  It all starts with budgeting, so if you haven’t already downloaded an Excel sheet then do it now.

Monthly Budget Example

 

Budget Smart, Invest Wise

 

Don’t Get Emotional

The other day I was sitting in a conference room with some coworkers.  Our company was restructuring it’s retirement plan for employees.  After the changes were announced, general conversation started taking place.  The financial recession of 2007 through 2009 came up.  One employee joked how he lost over $3,000 in the market downturn.  While it isn’t a large sum of money, it was enough of a loss for him to take his money out of stocks and place it in bonds.  He has had it in bonds ever since.

It is often said that losing money is more painful than gaining or winning money.  It is human nature for us to make rash decisions when our livelihood is being threatened.  And yes losing retirement money does effect one’s future quality of life and thus his or her livelihood.

My fellow coworker got too emotional during a time when he shouldn’t have.  When the market goes down, we hear “SELL, SELL, SELL”.  And when it goes up, “BUY, BUY, BUY”.  Don’t watch the news, don’t watch CNBC and their stock reports, and please don’t get emotional.  Investing consistently over time is the best way to ensure that you invest during dips and spikes in the stock market.  Right now the market is currently down about 6% from it’s all time high.  I consider that 6% a sort of holiday discount that we should all be benefiting from.

Budget Smart, Invest Wise