If you are like most people, it often seems that the money going out each month exceeds the amount of money coming in. Sometimes even the basic necessities appear to be out of reach. Saving for an emergency fund is impossible. And heaven forbid that someone gets sick or hurt and needs medical care.
Today we want to look at several ideas to increase the amount of money available to you.
The starting point is the taxes on your income. Examine your tax return. How much money are you going to get back from the IRS? If you are getting more than a few hundred dollars back, review your W-4 worksheet. You can get one from your HR department or google W4 Worksheet and download a copy. You may be able to claim a few more exemptions to maximize the amount of money in your take home pay with every pay check.
Focus on getting your tax refund or tax due to be as close to $0.00 as possible. Use the examples on the W-4 worksheet and compare them to the exemptions you claimed last year, then modify this year’s exemptions based on what happened last year.
The ultimate goal is to get as much as possible in your pay check without having to pay taxes at tax time next year. Under no circumstances should you be getting $1200 or $2400 or more back. If you are getting $2400 back this year, that means you could have received $200 more each month in your pay check. There is no sense in giving the government a loan and running up credit card debt because you are paying too much in taxes each month.
After examining your income, take a look at your car insurance. For many people, car insurance is a one and done. Once they obtain car insurance they tend to stick with the company, mostly because it’s easy. Let’s face it, shopping for car insurance is a pain, so once you have it you don’t want to go through that process again.
We recently read an article on the Penny Hoarder and they were talking about a service called Gabi, which will do the car insurance shopping for you. All you have to do is link your insurance account and provide your driver’s license number, and Gabi will scan your existing insurance plan, analyze your coverage, compare the major insurer’s rate for the same coverage and help you switch on the spot if you find a better rate.
They are making an apples-to-apples comparison so your coverage won’t decrease with a cheaper rate. They keep your information on file and continue to monitor costs and coverage to save you money in the future. The company claims that they find an average savings of $720 per year, which is about $60 per month savings!
We do not have any personal experience with this company, as we did our comparison shopping prior to finding it, but it sounds like a good idea to investigate further.
Another way to save money is to stay up to date with your Credit Score and Credit Report.
Is the information on your credit report accurate? An estimated 20-40% of credit reports have inaccurate information and if that inaccurate information is bad, your credit score could possibly be lower than it should be. The lower your credit score, the higher interest rates you will receive when you try to purchase anything by getting a loan. Cars, houses, renting an apartment, even your ability to get a new job can be impacted by a bad credit report and a low credit score.
Go to AnnualCreditReport.com to get a free copy of your credit report. If you find inaccurate information, follow the instructions to dispute it and get your information corrected.
Each of the three major nationwide consumer credit reporting companies— Equifax, Experian and TransUnion—are required by Federal law to give you a free credit report every 12 months if you ask for it. We recommend getting a report from one reporting company every four months so you can stay on top of your credit report information.
If you want more information on credit reports and credit scores check out our blog: Credit Scores & Real Life
Life Insurance is another potential place to cut spending. Suggested coverage is 10x your annual salary. The purpose for life insurance is to pay-off your outstanding debt and provide your loved ones with a source of income in the event of your death. Life insurance should not be used as an investment. There is a sound strategy in buying term insurance and creating a savings plan outside of the insurance through a program of mutual funds or other investment vehicles. The primary benefit to term insurance is that you can purchase much more coverage (sometimes as much as ten times more) than insurance with an investment opportunity attached. This is very important for families with children.
Term insurance typically comes in two forms and is the least expensive form of life insurance. In one form of Term insurance the premium increases each year while the benefit amount remains the same. This form normally has the lowest initial cost. The Second form of Term insurance is sometimes called Level Term and is probably the most common form being offered. In this form, the premium and benefit remain the same for a specific number of years—10 years, 20 years, 30 years—and then the price will increase or the policy will lapse. If at a later date you decide that you need insurance again, you will have to qualify based on your health and your then current age.
Operating everything out of one bank account can make your finances muddy and contribute undue stress to your money management. To simplify, open a second account for a dedicated purpose. Use an online account where there are no fees and the interest that the bank will pay you is usually much greater than your “brick and mortar“ bank. This is a way to ensure money is set aside for those items which only come up once a year (like Christmas or summer vacation) or each quarter (like car insurance or home owner association dues.)
The Compass Catholic Podcast offers more on this topic.