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1. Establish An Emergency BudgetSome of you may only be able to afford putting away less than 5 percent of your monthly income in case of emergencies, while others can afford considerably more. But when a crisis hits you hardest, you can’t afford to be without a backup plan. Keep track of your daily and weekly expenses and try to distinguish between necessity and luxury. For some of you, that may mean eating in more often or sacrificing a weekly trip to the movie theater. And for others of you, that may mean sacrificing annual vacations or large scale purchases. Do whatever you can do to save now to prepare for future catastrophes, do so. Your health may ultimately depend upon it.
2. Discuss Contingency Plans With Your EmployerWe often assume that our employers are unsympathetic to times of crisis when the very opposite is in fact true. But they’re frequently not always prepared to address emergencies. Does your HR department have a backup plan to address employee leave? Do they have a system in place that can provide for financial relief in critical times? Encourage them to be transparent in crisis management. Remember, the success of any organization ultimately depends on the wellbeing of all employees; and that starts with you.
3. Avoid Stress SpendingA recent survey from Credit Karma reveals that some 82 percent of Americans feel a noticeable amount of stress attached to their spending habits. Particularly around the holidays when there’s a much higher degree of emotional pressure attached to unnecessary spending. And while we’re not suggesting that you curb spending altogether, you may be inclined to spend more than you should on nonessential items to fulfill an emotional gap. This isn’t just unhealthy. In times of crisis, it can be downright devastating. Quick investment decisions never really meet long term financial security. And unhealthy spending can quickly drain you of any emergency fund you may have developed. Learning to spend moderately is as much as an artform as a skill. But it’s a critical oen to develop if you hope to get over any future financial bumps in the road.
4. Negotiate With Your LendersPrioritization of your spending can sometimes mean making hard decisions, and bills can frequently be one of them. Utility providers can frequently be more understanding of pressing everyday necessities than cable companies or mortgage lenders, but that still doesn’t mean you should fall behind. Limit credit card spending to only dire emergencies if possible, and pay whatever you can manage to other providers in times of emergency. You may wind up damaging your credit temporarily. But the good news is, there’s numerous credit counseling agencies who will work with you to help keep your head above water when times seem particularly dire.
5. Turn Your Passion Into Your Side HustleThe gig economy has virtually exploded in the past five years, and freelance independent contractors are no longer merely side jobs but lucrative ventures. Whether you choose to work from home or on the road, there’s virtually no area of the gig economy which won’t benefit from your enthusiasm and expertise. It may not make you rich; but it can parlay your own interests into a money making solution. One that’s just as fulfilling as providing for your family.
What Is The 50/30/20 Rule?At its simplest, the 50/30/20 rule means
- No more than 50 percent of your monthly income should be allocated towards absolute necessities: bills, car payments, mortgage or rent and groceries being the most immediate.
- 30 percent of your monthly income can be allocated to discretionary items: vacations, new household purchases, charitable donations and simple pocket money all fall under the umbrella of discretionary spending.
- 20 percent of your monthly income should be strictly allocated to your savings, be it through an employer sponsored 401(k), a bank savings account or mutual funds and stocks.
How Can I Organize My Budget Around The 50/30/20 Rule?It’s important to remember that while the 50/30/20 rule is an ideal standard, circumstances vary wildly for each of us. Some of you may be fortunate enough to be high income earners who can afford to put away substantially more than 20 percent each month for savings, while some might find saving more than 5 percent a month to be practically impossible. But there’s one thing people don’t always tell you about the 50/30/20 rule: what happens when there’s an emergency? What happens when our absolute necessities increase, threatening both our savings and our peace of mind? There’s some room for flexibility in the 50/30/20 rule. If you’re not able to save 20 percent each month, start with the bare minimum of what you can afford. If you find that there’s a huge discrepancy in your monthly discretionary spending, consider allocating more towards savings. And above all, keep an emergency fund available—even if it’s just two percent of your monthly income. Hopefully, you’ll never have to use it but (as the old maxim goes) it’s better to be safe than sorry.
What If I Need Further Advice About Saving For The Future?Also keep in mind that the 50/30/20 rule is just the start when it comes to planning for financial security in the future. And if you’re on active military duty, you’re already sacrificing enough. Maximizing your benefits shouldn’t be a further task. That’s why we’re here to help you. We’re the Armed Forces Benefits Network and we’ve been providing active and retired military members, federal employees and their families make the most out of their future today. Find out more at Armed Forces Benefits Network.
Common Tax Filing Mistakes and ErrorsNo one wants any mistakes, but here are some of the most common mistakes that are made, and how you can fix these errors before penalties.
- Wrong social security numbers – Often, this can be one digit transposed or double fingering certain numbers. Be sure that all your social security numbers are correct on your W-2s or 1099s before you file. By double-checking all the W-2s, 1099s, and information that you are filing with can save time and headaches.
- Wrong name on forms – Having the wrong name or misspelled names on forms can lead to delayed filing. In order to ensure that you are not having to file extensions for filing, or missing the deadline by accident, check the names on your forms. If you are filing online, be sure to check that everything is spelled properly. Correcting these errors before submission will ensure that your return goes smooth, and no extensions are needed.
- Issues with math – If you are doing your return manually, there can sometimes be small errors with the math. Double and triple check all the numbers to be sure that they match each time. Errors in the arithmetic can mean that your refund is not correct. You might be owed more than you are claiming, or you might have to pay back a portion of what you received. Be sure that everything is 100% correct when manually doing your taxes.
- Using the wrong bank information – By incorrectly inputting the bank routing or account number, your refund will not be issued in a timely manner. It is possible to double key or to add additional numbers at times. Be sure before you submit that these numbers are correct.
- Not adding additional work – This might seem like nothing. However, when you get your 1099s, the IRS also has a copy. By not adding these smaller items, even if it is only $500, it can add up on you in the end. The threshold for earnings has changed, which you can check on the IRS website. By not including all of your earned income, this can come back in the form of penalties and fees, which add up. Be sure when you are adding your financial gains for the year, you account for them all!
Getting The Best Tax ReturnBy avoiding the above mentioned common tax filing mistakes and errors, you can gain the best refund available. Avoid those pitfalls that can cost you later! If you are in doubt of how to file or where to start, please feel free to reach out to us. We are available to answer all of your questions!
Spending your Tax Refund Wisely
- Put into savings for a rainy day – It might not seem like a very fun thing to do with your tax return, but adding money to your rainy-day fund can be a very smart option. You never know what might occur in the future, and having some funds to fall back on can be a saving grace. Whether you need money while recovering from surgery, emergency car repairs, or other hardships that can occur, having a small nest egg will be a huge help.
- Pay off credit card debt – Paying down your credit card debt can help boost your credit score. Keeping those balances low will only increase the ratings that you will get from the credit agencies. By paying down or eliminating credit card debt, you can begin working toward buying a house, a new car, or other large purchases that you might be considering down the road.
- Pay down student loan debt – No one loves student loans. These are the dreaded loans that we know are going to be with us for many years to come. However, by putting a decent amount of money into one or more of your loans, you can pull that principal balance down (or pay it off entirely), giving you significant savings on the interest. One piece of advice – find your lowest balance and put money on that first. Once it is paid off, move to your next lowest balance.
- Invest – By using your tax refund to invest, you can begin to build a more substantial retirement fund. If you are not familiar with the stock market or are not sure where to begin, you can get with a broker who can advise and guide you to making the best decisions for your family and your money.
- Begin thinking about retirement – While we already touched on this with investing, retirement can sneak up on you. If you are not properly prepared for retirement, you might find that your monthly income is not enough to continue the lifestyle you want. Create a list of what your goals for retirement, and figure out what monthly income you are going to need to supply that. Along with investing, and interest-bearing bank accounts, you can begin to build a better retirement fund, and ensure that after you are finished with active service, your family is still maintained and cared for.
- Add or buy life insurance – Life insurance is not one of the areas we care to think about, but it is important. The amount of life insurance that you have should be able to pay off any large debts, send children to college, and help maintain a family if something should happen to you or your spouse. These needs are going to change depending on circumstances. Will you need to hire long-term child care? Pay off remaining college debt or mortgages? Will the amount be able to maintain your family while they adjust and move forward? These questions are not fun, but they are necessary. Adding to your current policy, or purchasing a new one can give some peace of mind to the “what if” questions that no one wants to think about.
- Put toward long term goals – Are you saving for a house or new car? You can put your tax return to work by finding either short or long-term interest-bearing bonds or savings accounts to help grow your money. Long-term goals, such as that retirement travel fund, or planning on the eventual upgrades of vehicles and lodgings, these interest-bearing accounts can help you grow your money faster.
- Use your money toward certifications or higher education – Investing in certifications or higher education courses can help move your career, both in the military and the civilian sector forward. Instead of taking out student loans, you can use your tax return to pay for a couple of classes or certifications for your chosen career field. Whether a college or trade school, these classes can help build your skills and portfolio, making you a stronger candidate as you move forward in your occupation.
- Renovate or update your home – We know in the military that you are never in one place for long periods of time. Eventually, you are going to come up on orders to move. If you own your home, using your tax return to renovate or update sections on your home can make it easier to sell when the time comes. Kitchens, bathrooms, flooring, and paint are some of the first things that are noticed when homes become available. By presenting your home, updated and current, the chances of selling or renting faster become stronger.
- Pay down a car or mortgage – Debt is hard to have, but by paying it down with your tax return, you are reinvesting your already hard-earned money in your daily life. Pay ahead on your mortgage or knock that car payment down faster. Once they are paid off, that is just extra money in your bank account each month. With the new funds, you can add to any of the above options that you have, or look to begin investing for your future.
Smart Moves and MoneyWe all want to get the most for our money. By using the ten smart ways to spend your tax refund, you can make your return go a little farther. Instead of that new phone or television, these tips can help decrease your debt, or help get set up for life insurance or retirement. Getting started is often the hardest part. Contact us today and find the answers to all of your questions! Make this tax season your best yet, and let your tax refund help make some smart moves this year.
Prepare for the Upcoming Tax SeasonNow obviously, everyone wants to play it safe when it comes to tax season. With the many different write-offs that are available, you want to be sure that you are getting everything that you are entitled to in your return. With that in mind, here are a few things to consider as we move closer to April 15:
- Sit down with a tax preparer – By sitting down with a tax professional before turning over your documents can help get any questions you might have answered. If you are not sure on documentation needed, or what you are able to write-off, it is smart to be prepared before you prepare your return.
- Use a seasoned professional – finding someone who knows how to prepare tax returns for military personnel can alleviate any headaches that might arise. You don’t want to wait until the last minute, and then encounter issues.
- Have all documents ready – If you are single, then it should be fairly easy to prepare your return. If you are married and filing jointly, then there will be some further documents needed. Add children, other income, 1099s, and more into that, and it can get murky fast. Having all your documents together and accounted for ahead of time will help to speed the process, and ensure that you are leaving nothing out.
- Be honest with earnings – If you have 1099s, or 1099Ks, it can be easy to leave off some income, especially if you are being paid through a third party site. Account for all earnings, to ensure that it does not come back on you later.
- Getting a second look – this last one is very important, especially if you prepare your own taxes. Having a second look at your return can find and rectify any mistakes that might have slipped past. If you are preparing your own taxes, it is worth having someone take a look at your final results, to ensure that you claimed everything, and got your best return.