If you are one of the many Americans whose savings plan has been impacted by a smaller-than-expected tax refund this year, it might be a good time to consider changing your financial planning approach.
Lots of people consider the tax return windfall they get every spring as an unofficial savings bonus. In reality, it’s a poor way to save money. The government ends up having your money until you file your taxes. That money does nothing for you while the government holds it. It’s not earning any interest, and it’s not being used to invest in any kind of growth fund.
A more sustainable plan is to make a better estimate of your tax withdrawals so you can retain control of that extra money. You can decide how to invest it so you earn money. Even if you are only earning a small amount, the funds are gaining something they otherwise would not.
Whether you are a new employee just signing up for your withholding or a long-term employee ready to make a change, it only takes filling out one form, the Employee’s Witholding Allowance Certificate or W-4, to change your withdrawal amounts. If you are unsure of how many deductions to claim, you have lots of options to learn about how to handle your money.
Organizations like the National Association of Personal Financial Advisors offer consumers resources to help find what they need. You might just need some advice on how to use your money wisely instead of getting a lump-sum tax refund. Or maybe you’d like to know your options on how to do that and also use your latest pay raise to start or add to a retirement plan. Often a fee-only advisor, who will not earn any commission on products or services, will discuss the best options for your personal situation.
The Financial Insdustry Regulatory Authority website contains valuable information about investing, understanding certain financial brokerage processes, and the difference between financial products and professionals. Websites like The Motley Fool, Kiplinger, or Bankrate give both novice and advanced consumers information they can use. Whether you need information on multiplying your savings for retirement, figuring out how much you can afford for a mortgage, or consolidating your credit card debt, you can get reliable, accurate information if you know where to look.
Once you are armed with information, you can decide if hiring a professional is your next best step. Generally a few hours with a fee-only advisor will pay for itself several times over. They can help you save thousands of dollars while also showing you how to take steps to grow your money, too.
While that boost of cash at the end of tax season is welcome, with a little planning, you can make it even better. And the more control you have over your own money, the better off you will be.
The report studied how different groups have fared financially since the recession of 2008. The study examined the wealth holdings and the medial household earnings of white, black, and Hispanic households. It revealed that while all groups saw their funds decline significantly, white households have rebounded better than black or Hispanic households, with Hispanics faring the worst.
According to the study, in 2007, white households held a median net wealth of $183,100 with median household earnings of $63,900. Black households held $39,00 in median net wealth with $39,100 in earnings. Hispanic households held $59,300 with income of $44,000.
By 2016, white households had $132,100 of net wealth with $67,200 in median earnings. Black households had $18,300 in net wealth and $37,000 in median earnings. Hispanic households held $24,400 in net wealth and median earnings of $38,000.
The significant drops in both total net wealth and median household earnings means minority families have less money to pay for everyday costs and little if any income left to save for retirement. And although the study did mention that at the moment Social Security will up the replacement rates for low earners, that’s little comfort for families who aren’t able to save for their futures right now.
The study estimates that half of all households in the United States are at risk for being prepared for retirement, the figures are different for each group. About 48 percent of whites, 54 percent of blacks, and 61 percent of Hispanics are at risk of not having enough to fund their retirement years. And if you are a caregiver to someone and a nurse, you have a distinct challenge.
What does that mean for retirement security and making good financial decisions? Saving any money at all is better than saving nothing. Taking a hard look at where your money goes now is a good first step. Then set a goal. If you want to save $50 a month, you’ll either need to reduce your spending or make more money. That could mean eliminating some things like buying take-out food or drinks. Coffees, sodas, and iced teas are rarely worth the price away from home. Packing meals and snacks to bring to work or to tide you over for a long day of clinicals and classes also makes a difference. Examine your cable bill, your phone costs, your entertainment expenses, and clothing expenses. Keep only what is absolutely necessary.
If there’s little space to reduce your expenses, think of ways to bring in a little more income and put it aside for retirement. Whether it is selling clothes online, tutoring nursing students, or taking a short-term consulting job, extra income can make a big dent in retirement goals.
Whatever you do, don’t sell yourself short. You are saving for your own future, and that alone is worth making it a priority.
You might be years or even decades away from retirement, so you might think you don’t have to worry about it right now. But you have to worry about retirement at any age, and the sooner you start putting money away for your later years, the less pressured your later years will be.
Why should you start putting money away now? Well, no matter what age you are, there’s going to be a time when you stop working and start living off the money you have put away. The more you can save, the more choices you’ll have available to you about where and how you want to and are able to live.
Whether you’re 25 and saddled with student loans and rent or 45 with a mortgage and your kids’ college tuitions staring you down and you can only put aside $5 a week, do it.
How can putting a little bit of money aside every single week help you?
1. Saving every week builds a good habit
Naturally, you’re going to wonder how such a tiny amount will make any difference, but it will in a few ways. First, putting that $5 into an account for retirement gets you in the habit of doing it every single week. Once you’re in the habit, it becomes easier.
2. Saving every week makes your account grow
So you only have a little money to put aside? If you put only $5 a week into an account, you’ll still have $260 at the end of the year that you didn’t have at the end of the previous year. If you put aside $10, you’ll have $520. Once you see the money add up, you’ll be inspired to add as much as you can, even if it’s only a dollar or two.
3. Saving every week means each year your money collects interest
As your account grows and gains interest, you can start investing it in long-term options. If your workplace has a retirement plan, your money, even the little bit that you save, will make more money. After 10 years, you’ll have a good chunk of cash.
4. Saving every week means each week of retirement is better than it would have been
Think of your habit of saving every week as a gift fund for your older self. It means you’ll hopefully have enough to live the way you want when you are no longer working. That means you might be able to travel, spoil the grandkids, pursue your passion, or start up a nonprofit. The earlier you start, the more money you are going to have to do what you want.
5. Saving every week means it’s never too late
So you’ll retire in 15 years and haven’t even started? Start saving now and put away as much as you can every single week. Any amount, no matter how small, is an amount you wouldn’t have otherwise. You’re going to need that money, so try to find it now wherever you can. Take on occasional side jobs or give up your daily coffee at the coffee shop and put all that money into your account.
Your retired self will thank you.
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