savings

Beat These 5 Financial Challenges

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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A number of signs indicate the U.S. economy is improving. They include soaring consumer confidence, highs for the stock market, and the low unemployment rate (most recently 4.5 percent).

At the same time, financial obstacles remain for many Americans. A new survey from the National Foundation for Credit Counseling underscores some of these ongoing challenges.

Common financial obstacles and how to overcome them

I picked some of the biggest challenges highlighted in the survey and added some advice on how to fight back if you’re going through them.

Rising credit card debt

Thirty-nine percent of respondents carry credit card debt from month to month, compared with 35 percent last year. Some 16 percent of adults say they carry $2,500 or more in credit card debt every month.

What you should do: Pay off as much as you can now. Benchmark interest rates are on the rise, and the Federal Reserve has indicated that rates are likely heading higher this year. So credit card debt is going to get more expensive. Consider getting a balance transfer card to reduce the interest you’re paying.

Student loan strains

Among respondents, 11 percent wouldn’t recommend student loans to finance college education, the same percentage as last year. Those who said their student loan was a good investment rose a bit to 9 percent, compared with just 6 percent over the previous two years.

What you should do: If you’re saddled with student debt, make larger payments if you can afford it. Also, have a percentage of your income automatically directed toward a college repayment fund so you won’t be tempted to use the money on something else. Check out this calculator that shows you how long it will take you to pay off your student loans based on varying factors.

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People saving less

Some 54 percent said they are saving the same as last year, down 4 percentage points from last year. The percentage of those saving more is unchanged at 26 percent. Meanwhile, 68 percent say non-retirement saving has decreased slightly over the past year.

What you should do: First, monitor your spending and make a budget. Then, make sure you’re getting the most from your accounts. Compare rates on savings accounts and CDs to make sure you’re getting a competitive return. Also, set up a direct deposit to transfer funds into your savings account.

Not saving for retirement

Among respondents, 27 percent aren’t saving any portion of household income for retirement. That’s little changed from last year. Asked about what areas of their finances worry them most, the top response was retiring without having enough money set aside.

What you should do: If your employer offers a 401(k) and matches a percentage of your contributions, make sure you’re taking advantage of the full match. Look over your current investments to make sure you’re not being charged high fees. Once a year, increase the amount you contribute by 1 or 2 percentage points at a time.

Need professional advice

A whopping 80 percent of U.S. adults say they could benefit from professional advice and answers to everyday financial questions.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Should filers be prodded to save tax refunds?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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It’s that time of year when I — and other tax specialists — nag, I mean encourage, you to adjust your withholding so that you don’t get a big refund.

Our argument generally focuses on getting that money now as part of your regular paycheck so you can use it to pay for holiday spending instead of charging those gifts and paying the bill later with your tax refund.

One group of tax experts, however, says we should instead encourage folks to save their refunds even before they get them each filing season.

Millions of refunds, billions of dollars

That’s probably a wiser approach. After all, Americans love their tax refunds from Uncle Sam. The IRS says that through Oct. 30, it had issued almost 109 million refunds that totaled nearly $299 billion.

The average federal tax refund check was $2,746.

The Refund to Savings initiative is a research project by the Center for Social Development at Washington University in St. Louis, Duke University and Intuit, the maker of the popular tax software program TurboTax.

The Refund to Savings, also referred to as R2S, looks at the taxpaying and saving behaviors of hundreds of thousands of people using a special tax software program. The software version used, TurboTax’s Freedom Edition, is available for free to individual filers and active-duty military members who meet certain earnings limits.

Based on data from those filers, the R2S believes it can help bolster individuals’ finances by suggesting these filers save their tax refunds before they actually get the money.

Savings suggested at filing time

When people complete their tax returns, note R2S researchers, the money is there, but it’s not quite in the filers’ hands. By offering taxpayers a choice to save at that key decision point, the study believes it will get more savers because the intent is still fresh and the desired option is convenient.

“When filers are asked how they want to receive their refund, we inject motivational messages, suggesting they save for emergency, retirement or another long-term goal,” Michal Grinstein-Weiss, a professor at George Warren Brown School of Social Work at Washington University, told The Wall Street Journal. “We also suggest the amount they should save.”

The IRS already gives taxpayers the option to have their refunds sent to checking, savings or retirement accounts. All you have to do is check a box on your 1040, enter the account number and the money will be directly deposited as instructed. You can even divide your refund among various accounts.

The R2S effort simply encourages such savings actions.

Suggestions for VITA filers

The effort is detailed in a recent R2S report, of which Grinstein-Weiss is a co-author, prepared for volunteer tax preparers who help filers each year at all Volunteer Income Tax Assistance, or VITA, sites. VITA workers help lower income taxpayers prepare and file their annual returns at no cost. The 2015 filing season threshold is $54,000 or less.

“If one of your VITA clients decided to save his or her refund, or even part of it, it could prevent a potential financial hardship for them and their family,” notes the R2S report. “Or, perhaps better, it could be the start that enables them to do things they may have thought they never could: buying a house or sending a child to college. Encouraging your clients to save a portion of their refund could have a profound impact in their lives.”

Refund savings for all

I believe R2S is on to something here. And it’s an approach that should be taken by all taxpayers who get refunds, regardless of income.

Everyone needs to have some cash set aside for a special goal or for emergencies that always crop up.

As long as people are using tax over-withholding and the subsequent refund amount as a forced savings mechanism, we should do all we can to ensure that the money actually does transfer to a savings account.

Do you get a refund every year? Have you ever had that refund directly deposited to a savings or other account? Have you considered adjusting your withholding so that you’ll get the money in your regular paychecks?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.