This Week In Your Wallet: How To Save Thousands In 2016
There are – quite simply – two ways to improve your bottom line. The first? You can earn more. We covered this one on #StartTODAY, and we’ll cover it again when we talk about making the most of your investments this Thursday. The second? You can spend less. On Friday on Today we tackled the five spending categories that eat up the biggest chunks of the average American’s budget: taxes, housing, transportation, food and healthcare.
But to start, I’d like to offer a mental trick that’ll help you stick to your spending cuts, and really, any changes you’d like to make for yourself this year. Stop using the words “I can’t” and start using the words “I don’t.”
Here’s why: As Jennifer Breheny Wallace recently wrote in The Wall Street Journal, research shows when you adopt a “personal policy,” which is essentially a rule for how you’re going to live your life and spend – or not spend – your money, you’ll have an easier time stepping out of the way of temptation. Perhaps your policy becomes, “I don’t buy prepared foods,” or “I don’t take taxis.” Your policies become integral to who you are and how you see yourself and help you stick to your goals. (Tell me one of yours! Reply to this email with one of your personal policies.)
Now, onto some specific spending cuts you can make for yourself:
- Taxes: Increase your retirement plan contribution by at least 1%. This year you can put up to $18,000 into a 401(k) (plus another $6,000 if you’re 50 or over). If contributing to a deductible IRA, you can contribute $5,500 (plus another $1,000 if you’re 50 or over). Your contributions are tax deductible, which means they lower the amount of income you’re taxed on.
- Housing: Challenge your property tax bills. The National Taxpayers Union estimates that between 30% and 60% of property in the U.S. is over assessed, which means you’re paying too much in property taxes. Yet fewer than 5% of people challenge their taxes each year. Do this yourself, or work with a local lawyer, who will do it for you and typically take 1/3 of what you save as a fee.
- Transportation: Pocket your gas savings. Americans will spend $17 billion less this year than last on gasoline – that’s about $100 per person — because prices are going to be down for the fourth straight year. You’re going to spend that money unless you move it into a different – savings – account. Do that automatically!
- Food: Figure out how to cook for the number of people in your household. The government says we waste an average of $900 on food each year – in part because of all the leftovers ¾ of Americans cop to throwing away. I asked fellow J Team member, Joy Bauer, how to solve this problem and she suggests immediately portioning your leftovers into individual servings and putting them into the fridge to take for lunch the following day – or the freezer for the future.
- Healthcare: Shop around for your prescriptions. Consumer Reports secretly shopped more than 200 pharmacies, comparing prices among five common generic drugs. The magazine found that the same drug could cost up to 10 times more at one pharmacy over another — even among stores within the same ZIP code.
Save $6,000 This Year
And while we’re on the subject of saving more money, USA TODAY offers six ways to save upwards of $6,000 in 2016. For example, shave $300 off your monthly expenses by cutting the cable cord (save $80-$140 a month) and dining in instead of out (save $150 a month). Save more Benjamins by taking advantage of balance transfers with 0% APR introductory rates. If you have substantial debt on a card with a higher interest rate (think the typical 15% APR), then transferring it to a 0-percent card and working to pay it off ASAP could save you hundreds of dollars in only a year.
For example, let’s say you have a balance of $7,500 on a card with the 15% APR and work to pay it off over the course of a year. After the 12 months, you’ll have paid $8,123.25. But if you transfer that balance of $7,500 to a card with a 0-percent introductory rate and 3% fee (the most common offer found in the CreditCards.com survey), then your payments and fee would come out to $7,725 total at the end of the year — saving you close to $400 bucks. Head here to see the site’s top picks for cards.
New Year, New Rules
New Year, new tax rules – and The Wall Street Journal has the rundown of changes you need to keep on your radar. For example, if you don’t have ACA-approved health insurance, the penalties are rising substantially once again. If that’s you, you’ll either owe a flat assessment fee or a percentage of income (whichever is higher). For instance, the flat assessment penalty for single adults more than doubled from $325 to $695. The Tax Policy Center came out with an ACA Penalty Calculator you can use to see how much you could be on the hook for.
Falling gas prices have lowered your mileage deductions this year. The business rate in 2016 is 54 cents per mile driven (compared with 57.5 last year). For charitable-related transportation, the rate is now 14 cents, and for medical purposes, 19 cents. (Note: It’s important to keep records for this particular deduction.) Tax brackets were also adjusted for inflation. Continue reading here. By the way, it’s officially tax season! The Internal Revenue Service begins accepting individual electronic returns today, and will give you until Monday, April 18th — not the usual 15th — to file this year.
Book Airfare This Month
Also mark your calendar to book airfare towards the end of the month. Airfare prediction app Hopper says their consumer airfare index will bottom out at $210 in January. You can thank falling oil prices for this one, too.
Have a great week (and happy filing!),
Jean
