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March Madness for Your Finances

Core Facts


Thursday, March 7, 2019

It’s time for March Madness! The NCAA Tournament is about to get underway. Are you excited?

It’s also tax season. March 15th is the due date for corporate tax returns, and it is also exactly one month before personal tax returns are due. By now you should have all your tax documents in order - 1099s, W2s, etc. collected and ready to go.

This is an excellent time to take a look over your financial life and see where improvements can be made and where strengths can be bolstered. In basketball, it’s important to understand where your team’s strengths lie. Likewise, it’s necessary to understand where you may be weak so that you can work to improve that area.

With your finances, we’re usually most weak when we spend more than we make (due to overpaying for expenses or simply having unnecessary expenses). Take this opportunity to list all of your monthly expenses, both fixed and variable. Taking this quick inventory will allow you to see where you should focus your efforts going forward. Are there expenses you could eliminate or reduce so that you can increase your savings?

According to the Federal Reserve, the average savings for Americans aged 35-44 is about $40,000, and that number rises to about $100,000 for those aged 55-64.

Basketball players have to be in tip-top physical shape to run up and down the court for a full game. Any extra weight will hurt their chances of performing at their best.

With your finances, excessive debt can hurt your chances of being able to save and live the secure financial life you desire.

Take this opportunity to look at where you can reduce debt. Start by reviewing your credit report to ensure you’ve captured all of your debts. Then list your debts from smallest to largest.

Start aggressively paying off your first debt, and then move to the next with the full court press. Keep going until you’re free of burdensome debt. Like losing weight, this can take some time and be a challenge. But your finances will thank you for it, and you’ll be able to do more with your money.

Another interesting exercise is to dig up old W2s and tax returns and compare your salary over the years to see if your income has gone up. Wage growth has averaged a 6.33% increase over the years. 

Just like in basketball, you need to take the shot if you have any chance of making it. With your financial life, especially on the income side of things, you need to take some chances. This means doing things like asking for a raise, interviewing for a better (higher-paying) job, working a part-time job at night or on the weekends, starting a side hustle or your own small business, etc.

Extra money is great for getting rid of your debts faster or getting to your savings goals a bit quicker. Like in basketball though, you need to take a few lower percentage shots to see your numbers climb higher in the long-run.

Any good basketball team is going to have a player or two that they can lean on to make them a winner. In the financial world, there are several savings opportunities that exist that should be your go-to accounts when trying to save more money.

The first place to look is your employer-sponsored retirement account (e.g. 401k). If your employer is matching retirement contributions, then you need to take advantage of this opportunity to grab some free money. It’s tax-deductible too. This means you likely won’t have to pay taxes on the money you use to fund the account. If you don’t have an employer plan, or if you want another place to save, try the Roth IRA. For 2018, the standard contribution limit for both traditional and Roth IRAs was $5,500. In 2019, this number goes up to $6,000. If you’re 50 years of age or older, the IRS provides a “catch up” feature that allows you to contribute an extra $1,000 each year. If you’re rolling over another retirement plan into an IRA, these caps don’t apply.

If you’re eligible, you’ll see your money grow tax-free. When you’re ready to retire, you can withdraw it without the burden of taxes.

Another good savings opportunity is the 529 College Savings Plan, which allows you to see money saved for college grow tax-free. Finally, if short-term savings is your game, consider a separate, online savings account. While rates aren’t as nice these days, these accounts are a great way to keep your savings away from your spending accounts. Put your money in all of these accounts automatically each month with a direct deposit, and you’ll really be using the key players on your personal finance team.

Another thing to consider is a Health Savings Account (HSA). The 2018 annual contribution limit that individuals with single medical coverage can contribute to a health saving account was $3,450, an increase of $50 from 2017. The annual HSA contribution limit is $6,900 for those covered under qualifying family medical plans (up from $6,750 in 2017). But if you were 55 or older in 2018, you could contribute an additional $1,000, or a total of $4,450 to an HSA for singles and $7,900 for families per year. 

 

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.

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Author: Sally Falkow

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Lawrenceville, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website: www.davidlerner.com

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Jake Mendlinger
Account Manager
Zimmerman/Edelson
516.829.8374 X 232
jmendlinger@zimmed.com

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