The financial gurus will be debating for years how we got into the mess we’re in—and how we’ll get out of it. But while the talking heads are talking, you’d like to know how to shore up your resources so you won’t have to worry about every little hiccup in the stock market. Here are time-tested strategies you can master—how to spend less, reduce your debt, make the most of your tax breaks, and finance your retirement. The idea, says William Speciale, a Boston-based adviser with the financial planning firm Calibre, is to focus on what you can control: “Little steps can really make a huge difference.”
Forget the short form. Most taxpayers-65 percent of us, to be specific—just take the standard deduction. But you may save money by itemizing your deductible expenses. It doesn’t matter if you use an online program (like turbotax.intuit.com or completetax.com), a current tax guide, or a storefront preparer. Out-of-pocket health care charges, business expenses (including some for job searches), and charitable donations are just a few of the items you may be able to deduct. Fill out the long form, known as the 1040, and compare numbers. If your total deductions are greater than $5,450 (the standard deduction for 2008 for a single person) or $10,900 (for a married couple filing jointly), you’ll save money by itemizing when you file.
Your kids should file a tax return. The Internal Revenue Service (IRS) doesn’t care how old they are. If they earn more than $5,450 in a given year (in wages and/or interest income), they have to file-even if you claim them as dependents. And if they make less than that, they should still file because they’ll get back all the money their employer withheld. Help them fill out the paperwork. It’s a great learning experience that may earn them some extra cash.
Avoid “rapid refund” programs. Sure, they sound great. After all, what can be better than getting your money fast? A tax-prep chain might try to get you to agree to one of these “instant” or “anticipation” options. Don’t take the bait. This is not your refund. It’s a loan—and a very high-interest loan at that. The average for 2008 was 123 percent. If you file electronically, even if it’s through a tax chain, the IRS will deposit your refund directly into your bank account within a week or two.
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Checking and Savings
Make sure your free checking is really free. A lot of banks advertise it, but read the fine print. If the minimum balance is steep-thousands of dollars, in some cases—look for a bank with no minimum requirement. This could save $100 a year or more. Bankrate.com is a good site for comparing accounts. (And don’t waste $2 on ATM withdrawals at another bank’s machines.)
Bank online. You’ll be surprised how easy it is to pay bills, transfer funds, save automatically, and keep track of it all. In fact, gathering records at tax time will be a cinch. And by setting up the automatic bill-payment option, you’ll help protect your credit score. Banking online is actually safer than banking at a brick-and-mortar institution. Banks have spent a fortune to make sure their sites are among the most secure on the Internet. Besides, most cases of identity theft happen the old-fashioned way—by crooks who raid your mailbox.
Keep your money in supersafe places. Aim to amass at least six months of emergency expenses, in case you lose your job or become disabled. Where’s the best place to keep it? FDIC-insured bank savings, CD, and money market accounts are still three of the most secure places. (The government recently increased the limit it will insure to $250,000 per account until December 31, 2009.) Money market funds that invest in Treasury bills are supersafe, too, but low yielding. Internet banks and credit unions tend to pay higher interest rates, but go to fdic.gov and check to make sure they offer the same government-insured guarantee. Look into Series I bonds, or I bonds, which are just as safe and are guaranteed to keep up with inflation. They’re also free from state and local taxes (and possibly federal tax, if you use them for college costs). The downside? You can’t redeem them for at least a year. And if you cash them in before five years, there’s a small penalty. Other savings options, including corporate and tax-exempt money market funds, are a bit riskier. Compare yields at cranedata.us.