Tag: taxrefund

How To Build Back Your Emergency Fund In a Tight Budget

Emergency funds are  important should you be faced with an unforeseen setback like a sudden job loss, an unexpected car repair or a serious medical situation. If you tapped into or depleted your emergency savings during the pandemic, it’s vital to set a financial goal to rebuild an emergency fund. Experts suggest having enough money for six months of living expenses in an emergency fund.

Even if your budget is tight, there are ways to stash some cash each month toward emergency savings. “It may seem difficult to set aside savings when you are on a tight budget, but you have to think about it as having no other choice,” said Dawit Kebede, a senior economist for the Credit Union National Association, which advocates on behalf of America’s credit unions.

Why is an emergency fund so important to have?

Your emergency fund allows you to pay for unexpected expenses, like providing a cushion if you lose your job or face sudden financial obligations. If you don’t have savings, you may have to rely on credit cards.

“Most people rely on high-interest rate credit cards to pay for unforeseen expenses, which leaves them in debt,” said Kebede. “Creating an emergency fund avoids relying on debt to absorb a financial shock.”

Pay yourself first

Kebede noted that people tend to put saving at the bottom of their priorities when they have fewer resources. So make building an emergency fund a priority.

“Understand that savings cannot be the lowest priority on your budget,” Kebede said. “You have to pay yourself first, even if it’s $15 a month. Setting goals and setting aside something, however small it may be, will go a long way. It will accumulate over time.”

Set a reasonable monthly goal, even when there’s little wiggle room.

Commit to putting bonus cash in your savings

If you get any extra money during the month, even if it’s a small amount, earmark it for your emergency fund.

“When building out your emergency fund for the first time or rebuilding following a major emergency expense, it’s okay to start with small contributions, and any tax refunds, gifts or extra cash are all great ways to contribute,” said Ryan Ball, vice president of market experience at Capital One. “Having a small amount in your account is more helpful than nothing at all in the preparedness for an emergency.”

Set up a save schedule

If you get paid twice a month, for example, create a plan to take a set amount and transfer it directly to your emergency savings account. Even if your budget is tight, pick a small amount and devote it to savings. “When contributing to your emergency fund, the best practice is to contribute to your account regularly and setting a schedule can help,” advised Ball.

To force savings, Greg McBride, chief financial analyst at Bankrate.com, advised automating your savings with a direct deposit from your paycheck into a dedicated savings account. “The savings happens first without having to think about it,” McBride said.

Another option, McBride explained, especially for the self-employed, is to set up an automatic transfer from your checking account to a savings account at a regular interval, such as once per month or every two weeks.

How can you force yourself to save without it seeming like a punishment?

First, accept the mindset that savings should be viewed as deferred spending for important or unexpected items rather than a punishment, said Kebede. Next, take an inventory of your spending habits. Can you cancel monthly subscriptions you’re not using?

Can you reduce takeout meals or the amount you’re spending on extras like dining out or paying for coffee every morning? Can you carpool to save on gas or stick to your grocery list by meal planning in advance?

“Setting aside a small amount regularly helps you feel that you haven’t sacrificed a lot, and watching your savings slowly accumulate will also provide motivation for you to continue,” Kebede said.

Use your banking institution’s resources

Your bank may have resources available to assist you to promote financial wellness and education.

For example, Ball noted that Capital One has resources, including its complimentary Money & Life Program, that helps participants build a plan to achieve their goals in life and think through how their financial behaviors connect to those goals.

“In addition to Money & Life mentoring sessions with a professional mentor, we offer a self-guided Money & Life exercise, ‘Map Your Spend,’ that can help participants visualize their spending and figure out where they can make changes to put a little extra money per month away for an emergency fund,” he said.

Contact your bank or visit a retail location to inquire about what mentoring services may be available.

By : Erica Lamberg

Source: How to build back your emergency fund in a tight budget | Fox Business

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If You’re In Your 50s or 60s, Consider These Moves To Avoid Higher Taxes In Retirement

If you are working with an eye toward retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the “ticking tax time bomb.”

I’m referring to the tax debt building up in your individual retirement account, 401(k) or other retirement savings plans. And, as I wrote in my newest book, “The New Retirement Savings Time Bomb,” it can quickly deplete the very savings you were relying on for your retirement years. But there are a few ways you can avoid this problem.

While you may be watching your savings balances grow from your continuing contributions and the rising stock market, a good chunk of that growth will go to Uncle Sam. That’s because most, if not all, of those retirement savings are tax-deferred, not tax-free.

The funds in most IRAs are pretax funds, meaning they have not yet been taxed. But they will be, when you reach in to spend them in retirement. That’s when you quickly realize how much of your savings you get to keep and how much will go to the government.

The amount going to the Internal Revenue Service will be based on what future tax rates are. And given our national debt and deficit levels, those tax rates could skyrocket, leaving you with less than you had planned on, just when you’ll need the money most.

So, that’s the dire warning. But you can change this potential outcome with proper planning and making changes in the way you save for retirement going forward.

You can begin by taking steps to pay down that tax debt at today’s low tax rates and begin building your retirement savings in tax-free vehicles like Roth IRAs or even permanent life insurance which can include cash value that builds and can be withdrawn tax-free in retirement.

In addition, if you are still working, you can change the way you are saving in your retirement plans. If you have a 401(k) at work, you could make contributions in a Roth 401(k) if the plan offers that. A Roth 401(k) lets your retirement savings grow 100% tax-free for the rest of your life and even pass to your beneficiaries tax-free too.

Learn more: All about the Roth IRA

What the News Means for You and Your Money

Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch.

For 2021, you can contribute up to $26,000 (the standard $19,500 contribution limit plus a $6,500 catch-up contribution for people 50 and older). With some Roth 401(k) workplace plans, you might be able to put in even more.

Then, see if you can convert some of your existing 401(k) funds either to your Roth 401(k) or to a Roth IRA. Once you do this, you will owe taxes on the amount you convert. The conversion is permanent, so make sure you only convert what you can afford to pay tax on.

Also read: We have $1.6 million but most is locked in our 401(k) plans — how can we retire early without paying so much in taxes?

Don’t let the upfront tax bill deter you from moving your retirement funds from accounts that are forever taxed to accounts that are never taxed.

Similarly, you can convert your existing IRAs to Roth IRAs, lowering the tax debt on those funds as well. The point is to not be shortsighted and avoid doing this because you don’t want to pay the taxes now. That tax will have to be paid at some point, and likely at much higher future tax rates and on a larger account balance.

It’s best to get this process going now, maybe even with a plan to convert your 401(k) or IRA funds to Roth accounts over several years, converting small amounts each year to manage the tax bill.

If you have been contributing to a traditional IRA, stop making those contributions and instead start contributing to a Roth IRA. Anyone 50 or over can put in up to $7,000 a year ($6,000 plus a $1,000 catch-up contribution) and you can do so for a spouse even if that spouse is not working.

If one of you has enough earnings from a job or self-employment (and you don’t exceed the Roth IRA contribution income limits), each of you can contribute $7,000, totaling $14,000 in Roth IRA contributions each year. That will not only add up quickly, it will add up all in your favor because now you are accumulating retirement savings tax-free.

Related: Should you convert your IRA to a Roth if Biden’s infrastructure plan passes?

Once the funds are in a Roth IRA or other tax-free vehicles (like life insurance), those funds compound tax-free for you.

The secret is to pay taxes now. It’s so simple, but also so counterintuitive that most people don’t take advantage of this and end up paying heavy taxes in retirement that could have all been avoided.

Ed Slott is a Certified Public Accountant, an individual retirement account (IRA) distribution expert and author of “The New Retirement Savings Tax Bomb.” He is president and founder of Ed Slott and Company, providing advice and analysis about IRAs.

This article is reprinted by permission from NextAvenue.org, © 2021 Twin Cities Public Television, Inc. All rights reserved.

Source: If you’re in your 50s or 60s, consider these moves to avoid higher taxes in retirement – MarketWatch

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How to Use Your Tax Refund to Rejuvenate Your Business

Getting a nice tax refund back is one of the best feelings in the world for small business owners. The big question is: how to spend that dough? We have a couple of suggestions on how to spend that money so that you can rejuvenate your business in the process.

Spend it on marketing (in the right places).

According to Cyber Alert, non-software companies with revenues less than $100 million spend between 3 percent and 10 percent of revenues on marketing. That’s a pretty decent amount of money to put towards marketing. That’s because, for small businesses, marketing efforts are hugely important when trying to grow their brands and gain new customers.

This year, put some of your tax refund towards marketing your business, but don’t just throw money blindly at your same old marketing tactics. Take this as an opportunity to try something new and really track your ROI. How much did you put in, how many clicks back did it earn? How many new or return customers did it bring in? What was the viewership like? Put some of your refund into trying new efforts and tracking their progress meticulously.

Once you’ve tested a couple new options, you should know what’s most worth your business’s money in the future. Some areas you could spend this money on: boosting different types of posts on Facebook and Twitter, creating advertisements for different social sites, and trying out different press release publication sites.

Thinking of investing in a CRM? We’ve answered your questions in our free e-book.  

Add a pop of color to your office and team-build at the same time.

A couple years ago, we had a paint night at the office after hours. We enjoyed some wine and cheese while an instructor walked us through how to paint a beautiful landscape filled with brightly colored trees. It was such a fun team-building activity, and we ended up with lots of great paintings! We liked them so much, we ended up painting our entire office based on the colors used in the paintings, and then we hung everyone’s painting above his/her desk. Using some of your tax refund on an activity like this is a great way to change up the look of your office and it’s a lot of fun, too.

Replace old equipment.

It’s always good to take inventory of the equipment your business uses on a regular basis. Just as you couldn’t run your business without your employees, you couldn’t run your business without the equipment you use. Though it can be pricey to replace something, it’ll more than make up for it in the long run by ensuring you keep on providing your customers with the best possible products or service, plus, it’ll eliminate the stress of having to worry about whether your equipment will break down on you or not. It’s important to take care of what takes care of you.

By: Deborah Sweeney

Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @mycorporation.

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