says another deduction people overlook is how you pay fees on your retirement plans. If you pay by check, it’s a deduction; if you let the plan administrator take the fees out of your account, you’re losing the deduction and reducing the amount of money compounding interest in your plan, he says.
Here’s a short list of some other deductions and adjustments you might be able to take to reduce your tax liability:
- Mileage, if you use your car for traveling to and from nonprofit charities.
- Job-search costs, such as travel expenses incurred by interviewing for a new position in another city.
- If you pay more than 50% of a parent’s medical needs, you can claim them as a dependent.
- Making sure that if your kids worked a summer job, you don’t claim them as dependents on this year’s tax return if they’ve claimed themselves on their own returns.
- Making quarterly tax payments if you’re self-employed to avoid penalties and interest for underpayments and late payments.
- Medical expenses because of disability, such as a special bathroom if you’re disabled or a humidifier if you’re asthmatic.
The key to long-term wealth is spending less than you make and not living beyond your income. Keep that advice foremost as you not only plan your budget but stick with it as well.
Most consumers would like to get control of their finances, but may think that budgeting is too cumbersome, or simply don’t know where to start. Budgeting does take time in the beginning, but once you have a good handle on how you spend your money, budgeting becomes almost second nature. Here are some hints in setting up and sticking to a budget:
- Using the Budget Planner, review your bills over the past six months and put them into the budget categories.
- Figure out the average monthly expenses in these categories.
- For expenses that are paid periodically or annually (such as insurance), divide by 12 to get the amount you must set aside each month to meet those payments.
- For variable expenses, check your last six months of check payments in those categories to estimate your usual monthly expense for each. Then multiply by 12 to arrive at the annual figures.
- Once you have listed monthly and yearly expenses in all of the categories of your spending, figure out your total income per month and per year.
- Subtract your monthly and yearly expenses from your income. If you find that the remainder is a negative number, you need to go back to some of the spending areas under your control to see where you can cut back.
- Your work doesn’t stop here. As your bills come in, keep track of your actual expenses in each category and adjust the budgeted figures, if necessary.
Budgeting requires self-control and discipline to reach your goals-it can become a habit that will take you to greater financial security.