The Art of Savvy Budgeting

Before you can invest, you must figure out how to keep track of your cash

credit card to pay your other monthly bills, you’re in trouble.
Also, although credit cards tend to carry high interest rates, you can shop around for better terms. Go to www.bankrate .com, a leading resource on banking products, and research the terms of cards across the country.

TAXES

  • Hire a tax advisor. Getting the most out of managing your taxes-and not letting taxes get the most out of your paycheck-is crucial, tax advisors say. Experts highly recommend hiring a tax advisor to help you determine what deductions you’re entitled to.
  • “The first thing is plan for taxes in advance throughout the year,” says Leon Walker, CPA and partner in Bert Smith & Co., an accounting and management consulting firm in Washington, D.C. For example, consult your accountant about whether you can deduct the costs of certain professional trips and adjust how much you’re contributing to your retirement plan.
  • Maximize your 401(k) contribution. Among accountants, this piece of advice is unanimous. A 401(k) is a defined-contribution retirement plan offered by for-profit corporations; similar types include a 403(b), established for employees of not-for-profit organizations. By setting aside this money, you wind up paying less in taxes to the government. And if your employer provides matching contributions, it’s like getting free money for your retirement.
    “If you’re eligible to participate in your company’s 401(k) plan, you should participate in it to the maximum amount you can afford,” says Walker. If you’ve taken a new job, you should ensure all rollovers from 401(k)s are invested in a new plan prior to 60 days, he adds, and that all rollovers are paid directly to the new 401(k). Don’t accept a check f
    or the amount accumulated in your old company’s defined-contribution plan; you could wind up paying taxes and an early withdrawal penalty on the amount.
  • Adjust your withholding tax every year. Another key to efficient tax management is adjusting your withholding tax every year. If the government takes out too little in taxes from your paycheck, you’ll wind up paying more to the IRS come April 15; too much, and you’re depriving yourself of capital you could be putting into investments. If you declare “0″ dependents on your W-4, for example, in some instances you could be paying far more than your fair share.
  • Take all your allowable deductions. Keeping close tabs on the deductibility of all your expenses will put more money in your pocket and less in the government’s, tax advisors say.

Of course, everyone’s situation is different, but generally people can take deductions on items like medical bills and interest on student loans. Some expenses, like the cost of subscriptions to investment magazines like this publication, can be deductible-if you can prove you used the information to research your investments.

“It’s really a matter of record-keeping and structuring things so you take advantage of all the things you do,” throughout the year, says Stewart. He suggests that if you pay tithes to your neighborhood church, keep track of those donations. “Consider writing checks so you can have a record of that.”

Stewart

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