Month: October 2017

Wanting to get started on building long-term savings is an admirable goal. If you are able to free up some extra money in your budget to build that savings bigger faster, that’s all the better. Here are 10 tips to free up extra money to boost your savings.

1. Cut down on eating out
If you buy a fast-food or deli lunch every day at work you are probably spending $7 to $8 a day. Taking your lunch each day only costs a couple of dollars a day, leaving you a savings of around $5 a day that you can put toward your savings.

2. Refinance your mortgage
If you own your own home, you might be able to free up extra money by refinancing. If you plan to stay in your home for at least a few years and can get at least a 1 percentage point decline in your mortgage rate, you could significantly reduce your monthly mortgage payments and free up several hundred dollars a year to put toward savings. Use a mortgage calculator and see if you’re leaving money on the table.

3. Inquire about auto insurance discounts
Car insurance is a place you may be able to save some money to boost your savings. Inquire with your insurer about possible discounts you might qualify for, such as a good driver discount, a discount for completing a safe driver class or a multi-car discount. Consider the situation you’re in and make sure that you have the right company as your insurance provider. For example, seniors should look for a good senior auto insurance policy. Some companies specialize in those non-standard situations.

4. Increase your deductibles
Another way you can save extra money to save is to increase your deductibles on car and homeowners or renters insurance. Doing so will reduce your premium costs each month and free up extra money to save.

5. Bundle for discounts
Bundling services can get you discounts you can apply toward your savings. For example, you can bundle your cable TV, Internet and phone services with the same provider, which usually results in a discount of at least 10 to 25 percent. You can also bundle insurance policies.

6. Get a rewards credit card
You can earn 1 percent or more on your credit card purchases that you can put toward your savings. Use the card only for necessities, such as gas and groceries, and make sure to always pay the bill in full and on time every month.

7. Cut your energy costs
If you keep your thermostat a couple of degrees higher than normal in the summer and a couple of degrees lower than normal in the winter, you can save a few extras dollars each month on your heating and cooling bills, which you can put toward your savings.

8. Bike or use public transportation
The less you use your car, the less you have to pay for gas and parking. If your workplace is close enough to bike or walk to, do so whenever you can. If it’s cheaper to take public transportation than drive, do so when you can to save money.

9.Cut your entertainment spending
Stay home a watch a rented movie rather than going out to one. You might also check out free plays and concerts instead of buying tickets.

10. Look at all discretionary spending
Can you find a cheaper gym membership? Do you need all the cable channels your provider offers? Do you have the Cadillac cell phone or Internet plan when the Kia version would do? Combing through your discretionary spending is likely to find you a few extra dollars to save.

Tax laws are large, complicated and forever changing. The 2014 tax year has some notable changes, both good and bad, that will affect a large number of American citizens. Keeping track of these changes is important, because it can have drastic consequences on income tax returns. The following major changes all have to do with federal tax returns.

Health Insurance Tax Changes:

The most notable and drastic change to taxation law for 2014 involves Obamacare and the use of the new health insurance exchange system it implemented. There are two major factors involved. The first is a penalty for not enrolling in an acceptable coverage program. The second is the financial aid that is available to certain lower income individuals to help them afford acceptable coverage.

The Penalty:

Starting in 2014, individuals who do not enroll themselves in an “acceptable” health insurance policy will face a penalty that is collected as a tax at the end of the year. There has been some debate on Capitol Hill about cancelling or extending the deadline on this mandate, but as of February 2014, the mandate still stands. There are certain exemptions for very low income individuals and those who meet certain other conditions. The 2014 penalty is rather small at $95 for the year. That pales in comparison to the thousand or more dollars a year it would take to pay minimum essential insurance premiums. This cost quickly escalates the following years. The planned penalty for 2015 is $325, and the planned penalty skyrockets to $695 in 2016. While these penalties are still lower than the total for monthly premiums, the idea is that most people would rather put their money toward insurance than just hand it over to the government.

Everyone has a three month grace period to enroll, so the penalty will not kick in unless they go more than three months out of the year uninsured. There is a catch, however. Open enrollment for insurance ends the last day of March, so if someone does not enroll by then, they will have to wait until November to enroll, and that will bring them over the three month grace period by default (http://obamacarefacts.com/obamacare-individual-mandate.php).

The Tax Credit:

The reverse of the penalty is the tax credit for enrolling in a qualified policy. Anyone who falls between 100 percent and 400 percent of federal poverty line in annual income will be able to collect the tax credit (http://obamacarefacts.com/federal-poverty-level.php). In most states, those lower than 100 percent will automatically be enrolled in Medicaid and will not be affected. There are, however, multiple states that have opted-out of expanding their coverage, and may fall into a coverage gap.

This tax credit can be provided monthly as a way to lower premium payments, or it can be provided as a lump sum on a person’s tax return. The exact amounts of payment are only final when the income is reported. Any differences between monthly payments and the actual coverage are made up for as tax debt or credit on the return. If someone ends up with a credit, then that can be collected as cash on their return, even if they were on the monthly plan.

Other Tax Changes:

There are a myriad of other, less major, changes. Here are some highlights of previous exemptions that are set to expire.

1. Option to deduct sales tax
2. Option to deduct higher education tuition and fees up to $4,000 for most individuals.
3. Transit pass tax break reduced from $245 to $130.
4. The option to deduct up to $500 for improvements to home energy efficiency.
5. Option for teachers to deduct up to $250 in school or classroom related expenses that they paid out of their own pockets.

The time to set a habit of frugality – of saving – is as early as possible, ideally when you’re in your early to mid-20s. Because of how compound interest works, every dollar you save early in your career is worth more than a dollar saved later in your career. The trick to saving in your twenties is to make the savings process as automatic as possible.

401(k) Investing

If your employer offers a 401(k) program, contribute to it, and have the money taken out of your paycheck. Most 401(k) programs have an employer matching level – typically 4-9% of your salary. What this means is that for every dollar you contribute to the 401(k) up to this threshold, your employer will match it – effectively doubling the investment up to this amount.

The second benefit of a 401(k) is that it comes out of pre-tax income; in most states and professions, this effectively means that every dollar you contribute to a 401(k) only takes 85 to 77 cents out of your paycheck.

The third benefit of a 401(k) is that any interest it accrues is tax-deffered. It doesn’t count as income until you withdraw from the account, and you can withdraw from it at the same time you’re eligible for Social Security Retirement benefits.

The final benefit of a 401(k) is something of a mixed blessing: 401(k) are par t of an investment portfolio – which means they’re at the vagaries of the stock market. It does mean that if you can contribute to a 401(k) when the market is down considerably (as it was in 2008-2009), you’ll see some substantial returns.

By and large, if you can, set your 401(k) as a “set it and forget it.” The longer you let it run without touching it, the happier you’ll be with the end result.

General Savings Plans

Once you’ve got your 401(k), you should figure out your monthly income and try to set your monthly expenses at 90% of that amount – and put the remaining 10% in the bank. One technique that works very well, if your employer offers Direct Deposit, is to split your deposit so that roughly 10% of your expected income is deposited into a savings account and the remaining 90% into your checking account, and try to forget that the savings account is there for a while.

When your savings account has a balance sufficient to support you for three to four months with no income, draw two months worth of income out of it and buy certificates of deposit, or CDs. A CD is like a savings account with a time-lock on it. In return for this time-lock, banks pay higher interest rates on CDs. You can buy CDs with staggered maturation rates; for example, buy your first CDs to mature in 3, 4, 5, and 6 month durations. Each time you have enough money to buy another CD, buy one that will mature one month later than your latest maturing CD. Whenever a CD matures, re-invest it the same way. Eventually, you’ll end up with a pipeline of 36 or 48 CDs, with one maturing every month, and periodically feeding more into it This gives you a greater rates of return than your savings account while still maintaining some fluidity.