Avoid These 8 Budget Blunders

Avoid These 8 Budget Blunders

Creating and maintaining a household budget is a powerful tool for achieving financial goals. But these eight budgetary blunders could tank your best efforts to stay on track.

 

1. Omitting occasional expenses. You (hopefully) don’t have to repair your car on a monthly basis, but it’s unrealistic to pretend it’ll never happen. And just because you don’t know when the next breakdown will be, that doesn’t mean you should leave an occasional bill from your mechanic out of your budget. For unpredictable expenses like these, look back at the cost of prior repairs for an average figure to factor into your budget. As your car gets older, you may want to adjust that estimate up a bit as you’ll have a greater chance of more extensive repairs with a “mature” vehicle.

 

2. Forgetting about small purchases. That daily cup of joe at the train station may not cost you much, but little things can add up when they’re repeat offenders. Capture small expenses like these in your monthly budget. Include things like tips on services and your Sunday morning bagel run.

 

3. Ignoring large purchases. How do you budget for a big two-week summer vacation? It’s important to have a plan if you don’t want to end up with a gigantic credit card bill as a final souvenir of your beach getaway. Tackle large expenses like these by dividing the total cost by 12 and including that amount in a monthly savings budget. That way, by the time you pack your bathing suit and sunscreen, your fun-times fund will be able to cover your costs.

 

4. Relying on memory. When you review your spending at the end of the month, it’s easy to forget a purchase here and there. This is why it can be helpful to look back at electronic banking records to account for every dollar spent. After all, if you don’t accurately align your spending with your budget, what’s the point of making one to begin with?

 

5. Leaving no wiggle room. Always reserve a little cushion in your budget just in case. It’s pretty hard to anticipate every expense that might come up during the month, so don’t budget down to the penny – allow some wiggle room in case you’re overly optimistic in your projections.

 

6. Not paying yourself first. Don’t let planning for your future become an afterthought. Make it a top priority each and every month. Participating in your employer-sponsored 401(k) plan is a great way to make retirement saving automatic. And when by making regular contributions, you’ll dollar cost average into the market, which means you’ll accrue more shares when prices are lower. And everyone likes a bargain, right?

 

7. Being too hard on yourself. Sticking to a budget takes practice and discipline. You might not hit your target each and every month, but it’s important not to beat yourself up if that happens. Try to understand what occurred, make adjustments based on what you learn and get right back on track. You don’t need to budget perfectly to make a positive impact on your financial future.

 

8. Going it alone. Your employer-provided financial advisor is a fantastic resource. Budgeting can be complicated, and your advisor can help you sort through the details. Make an appointment to review your budget or get help setting one up for the first time.

 

Making — and maintaining — a budget is one of the best things you can do to stay on track for your retirement and other financial goals.

Retiring Soon? You Need to Be Doing These 7 Things Now

Retiring Soon? You Need to Be Doing These 7 Things Now

Retirement can be a rewarding and exciting time. Make the most of yours by preparing ahead so you can relax and focus on all the fun stuff ahead.Are you in the final countdown to retirement? Congratulations! This can be an amazing time full of new opportunities. Put yourself in the best position possible for your next adventure with these seven retirement readiness tips.


1.  Revamp your budget. If you’re retiring soon, some expenses will likely go up — like medical and travel. But others will probably go down. You may not need to spend as much on clothes for work, and you may not even need a second car if you’re married. If you’re going to lose employee-sponsored health insurance and are not yet Medicare eligible, you’ll have to budget for purchasing insurance privately or buying it through one of the Affordable Care Act exchanges. And while you may have hoped to have all your debt paid off before retirement, unfortunately for many this is not the case. But you should at least audit all your debt including: mortgages, home equity lines of credit, cars, credit cards and other loans. That way you can budget for those expenses during retirement. Or you may decide to work a few more years part time to help expedite that process.


2.  Know Your Tax Strategy. Your taxes may change dramatically once you stop working, and different sources of income may be taxed at different rates. For example, IRA or 401(k) plan withdrawals are taxed as ordinary income, but for Roth IRAs or Roth 401(k) plans, withdrawals can be tax free. You may be subject to capital gains if you withdraw from a taxable investment account and required minimum distributions may push you into a different tax bracket once you reach age 70½. Consult your tax advisor to know what you can expect in your particular situation.


3.  Have a Social Security Plan. Your benefits will be reduced if you start taking Social Security before your full retirement age, which is probably about 66 to 67 depending on when you were born. If you wait, your checks will be higher. Determining exactly when to opt in can be a


complicated decision that would also benefit from an open discussion with your financial advisor. Taking benefits early can affect how much you can earn without your Social Security

benefits being reduced. Many people don’t realize that a large portion of their benefits may also be taxable.


4.  Get a handle on Medicare. What you’ll end up paying for your Medicare benefits depends on several factors, including your income. Medicare is a complicated program and you don’t want to be figuring it all out at the last minute, so now is a good time to do your homework and speak to your financial and/or Medicare advisor. According to research from Fidelity Investments, the average 65-year-old couple will spend more than a quarter million dollars for health care over the rest of their lives. Having Medicare and the right supplemental insurance is critical in planning for this phase of your life.


5.  Finish your estate plan. If you haven’t already, take care of your will, durable power of attorney, healthcare power of attorney, and/or advanced directives. Other documents such as a trust, guardianship designation or letter of intent may also be appropriate. Consult an estate planning lawyer regarding your specific needs.

6.  Reassess investments. Hopefully you’ve been keeping a watchful eye all along, but if not, it’s especially important to reevaluate your allocations before retiring. Your portfolio may not have time to recover from a serious market downturn. Check risk in all your retirement accounts. Make sure your market exposure is appropriate given your age and risk tolerance.

7.  Plan your free time. You’re retiring soon and that means your life is about to undergo major changes — and not all of them financial. Your daily rituals will be different and you may not be seeing a lot of the same people day to day. While sleeping in and hitting the links may be satisfying in the short term, for some it may gradually give way to boredom or depression. Consider joining some clubs or volunteering to keep yourself busy and meet new people. Couples who may have never spent all day long together may also need a little time to readjust to a new routine.

Source: https://www.cnbc.com/2018/11/02/if-youre-planning-to-retire-in-2019-heres-how-to- make-sure-youre-prepared.html

Tags: estate planning, retirement, budget, estate

How Much House Can I Afford?

How Much House Can I Afford?

You’re eyeing center-hall colonials in your neighborhood and dreaming about the garden you want to plant in the backyard and all the holiday celebrations you’ll host. You’ve saved toward this goal and think you’re ready to pull the trigger. But the real question is: How much house can I afford?

 

Or is it?

 

Perhaps a better question really is: What else do I want to afford? In other words, do you want to get the most house possible, with little left for a new car — or that European getaway you’ve been learning Italian for? It’s important to take into account your goals and lifestyle as you consider this important decision.

 

And a huge consideration should be your retirement goals. What will you appreciate more: an extra bedroom, larger yard or an early start to your retirement?

 

While a house is an asset that can be a savings vehicle and wealth-builder, it’s not especially liquid, flexible or portable. And if the housing market deflates, it can cost you. So, it’s important not to get in over your head.

 

No Magic Number

Many financial planners advise budgeting no more than 28% of your gross income toward your mortgage and no more than 36% of your income toward all of your debts combined. That mortgage cost includes principal and interest as well as taxes and insurance (PITI).

 

Another common formula dictates that most people can afford a mortgage of 2 to 2.5 times their annual income. By that guideline, a person earning $60,000 a year would be able to afford about a $120,000 to $180,000 mortgage payment.

 

Look at the Big Picture

Remember that these are only starting points for making a decision. There are additional costs beyond PITI to keep in mind. HOA dues, maintenance, upgrades (even small improvements add up), commuting costs and school quality all should be considered.

 

Also, how long a loan do you want? 15 years? 20? 30? With a shorter-term mortgage, you’ll pay more each month but significantly less over the life of the loan — and you’ll get out of debt sooner. But be very careful about using an Adjustable Rate Mortgage (ARM) as the means of affording more house. With mortgage rates at historic lows, they are likely to go up at some point in the future.

 

Get Some Professional Advice

Finally, review how much you’re currently saving for retirement. Balance that against potential returns from the eventual sale of the home. While houses have generally been good investments historically, it’s very hard to predict values for a particular neighborhood 10 or 20 years in advance. If you think you may want — or need — to move in the near future, you may be rolling the dice. Balance the above factors. Buying a house is committing you to a monthly payment and lifestyle not only for today, but also in the future.

 

Choose wisely. Run the numbers. Talk to your advisor.

 

Source:

 

https://www.investopedia.com/articles/pf/05/030905.asp

I’ve Depleted My Emergency Fund. Now What?

I’ve Depleted My Emergency Fund. Now What?

Perhaps you’ve lost a job, faced an illness or have been dealt a family crisis that emptied out your emergency fund. What are your next steps?


Take stock of your situation. First of all, stay calm. It’s much harder to make difficult decisions when you’re upset. Try not to panic and seek the support of friends and family — and the advice of a financial advisor. Every situation is different, so there are no hard and fast rules that apply to everyone, but here are some general points to consider as you navigate stormy seas.


If possible, stay current with bills and try not to use credit cards to bail yourself out. And if you must use credit, use the one with the lowest interest rate and try to negotiate an even lower rate with your creditor than what you currently have.


Hit the pause button on spending. Next, enact a short-term spending freeze. No restaurants, no new clothes and no vacation. Nothing non-essential until the crisis passes and you have some money back in your emergency account. Review your budget. Go through every single line item and see what you can reduce, pause or eliminate.

 

Downgrade cell service, drop online subscriptions and reduce extracurricular activities for kids and yourself. Place your gym membership on hold if you can, and work out at home or outdoors. Plan your meals to lower food costs and use coupons at the grocery (and anywhere else you can). If you have services for your house, pool or lawn put them on hold and go the DIY route when possible.

 

Talk to your lenders and see if you can negotiate a temporary reduction in payments for your house, car and personal loans. Especially now, many banks and creditors are extending a helping hand to pandemic-impacted clients. You may be able to get a forbearance on your mortgage while you recover financially.

 

Earn extra money. Sell your surplus clutter to raise some emergency cash fast. If you have extra TVs, furniture, electronics, kids toys, exercise equipment or anything else, post it on letgo, eBay or Facebook Marketplace. Put your proceeds right in the bank.

 

Can you pick up a side hustle? Sell your writing or graphic design services on Fiverr. You might also find part-time work with one of the companies that are still performing well during COVID-19.

 

Avoid this if possible. Raiding your 401(k) might sound tempting right about now, but avoid this drastic course of action if you can. While briefly pausing contributions may make sense, taking out large sums can set your retirement goals back for years. And there’s the opportunity cost of not remaining fully invested.

 

As soon as you’re right side up and paying all your bills again, begin rebuilding your emergency fund — and feel proud of yourself for having prepared for the unexpected in the first place.

Did You Know These 8 Things Are Taxable?

Did You Know These 8 Things Are Taxable?

Every April, Americans face the often-dreaded ritual of filing their taxes. The prospect of a larger-than-expected tax bill is one common source of anxiety, but so is the possibility of making a mistake that runs the taxpayer afoul of the IRS. Here are some things that many people don’t realize are taxable.

1. Unemployment income. Yes, the unemployment income you receive after a job loss is taxable. And unfortunately, this is one issue that will affect many 2020 taxpayers. You can elect to withhold taxes from your benefits, but if you didn’t realize your unemployment was taxable, you might be in for an unpleasant surprise when you go to file.


2. Gambling winnings. Even when Lady Luck shines upon you, Uncle Sam still wants a piece of the action. Whether your earnings are from online fantasy football or the racetrack, those earnings are, in fact, taxable.


3. Forgiven debt. You may be fortunate to have a creditor forgive your debt, but that goodwill also triggers a tax liability. From the point of view of the IRS (the only one that matters when it comes to taxes), you received income when that debt was forgiven. Therefore, that amount is taxable except under certain conditions, such as a bankruptcy ruling.


4. Social Security. Social Security benefits can be taxable depending on your level of income from other sources. If you want a smaller tax bill, you can elect to withhold taxes from your Social Security or make estimated payments on a quarterly basis.


5. Severance pay. After losing a job, you might be in for a little more bad news. If you receive a compensation package after separating from a job, your severance pay — just like the income you received from your employer — is taxable.


6. Freelance income. If you work a side hustle on Fiver or Upwork to help make ends meet, you’re responsible for taxes on that income just as you are for the money in your company paycheck. However, since most people have taxes withheld from their employee compensation, but not from freelance earnings, you may end up owing more than you expected on this type of income.


7. Profits on a sale. If you sell your rare Claude the Crab Beanie Baby for a profit, then you may be surprised to learn that you owe taxes on the profit you made — even if the sale was to a friend or family member.


8. Awards, prizes and contest winnings. Did you hit the Powerball jackpot or draw the winning ticket at the church raffle? You guessed it — those winnings are taxable in the eyes of the IRS.


Your individual circumstances may impact your tax liabilities, so always consult a qualified tax professional to see what qualifies as income in your case and what tax deductions you might be entitled to.

 

Sources:

https://www.investopedia.com/articles/personal-finance/031416/10-surprising-taxable-items.asp

https://turbotax.intuit.com/tax-tips/fun-facts/10-things-you-wont-believe-are-taxed/L3tQz7kej

https://www.irs.gov/pub/irs-pdf/p4128.pdf

https://www.irs.gov/newsroom/irs-unemployment-compensation-is-taxable-have-tax-withheld-now-and-avoid-a-tax-time-surprise

https://www.kiplinger.com/article/taxes/t055-c032-s014-selling-your-stuff-the-tax-dimension.html


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