Mo Vidwans
Last month, we discussed some of the habits that are considered bad for your financial health. This month I will continue that thought and make the total of 12 habits that need to be avoided.
6. Not having insurance, especially when you are young. We always need all kinds of insurance, but you need it most when you have a young family to support. And God forbid if something bad happens to the bread earner(s) in the family, then we have to worry about how the family will be taken care of. Not a pleasant thought. Until the children are on their own, there is a strong need to have some backup plan to have enough money to get the family through the next 10 or 15 years or until the need is over. A Term life insurance policy is a good way to go. You would not need it after a certain time in your life. Just remember the best insurance policy is the one you never have to use; that goes for not just life insurance policy but also any other insurance policy.
7. Not getting rid of credit card debts. Having and using credit cards is such a great attraction for so many, as it is like having a printer at home that can print money on demand. It sure seems that way at times, but those printers have long and strong tethers attached to a Bank and these tethers don’t break easily (or let’s say it is in the interest of the Banks that issue the cards not to break them) and if we are not careful the banks get their evil arms wrapped around us stronger and stronger in the form of interests and penalties and so on. A credit card is a convenient and needs to be used carefully. One way to do that is to make full payments on them every month so that there is no balance at the end of the month and no interest to pay. Get rid of the outstanding debt and the interest that you are paying on it; you can negotiate with the bank. Many banks charge in the neighborhood of 15 – 18 percent interest and if you don’t have to pay that then you are in effect earning that kind of return on your money that would have normally gone to paying the credit card payments. I don’t know any place where you can earn that kind of interest.
8. Not doing tax planning to reduce taxes. Doing taxes every year is one of the most disliked activities for many and I can understand why; it is forced on you, something one must do. Not most cherished activity, though it can become one if you understand and manage your taxes well. You can literally save much money over the years. I am talking all legally allowed activity only. Initially it is done by managing your taxable and non-taxable assets and then paying more attention to itemized deductions, foreign taxes if any and as you get closer to age 60 + and retirement, doing many other tax-wise things that are legal. For all this to happen you need to get proper tax advice over the years, and not just at the tax time, or educate yourself in these matters. It is a simple matter of setting up priorities and getting interested to take advantage of tax planning.
9. Not paying attention to your health. Health generally doesn’t become an issue until late in most people’s lives, but generally at that time, either it is too late or we have to pay much more attention and time to improve our health. In general, it is possible to improve our health at any age if we just get serious about it. But it becomes easier if we are paying attention to it from the beginning. Why am I focusing on this? We never think about it, but health and health costs can become big issues in later age, say 70 and up, and then it is not easy and simple to control it. I am not talking about concerns that come up naturally because our body ages; concerns like hearing, eye and teeth problems, mental agility or even joints and stamina issues. I am only thinking of issues that can be controlled, maybe by us managing them from an early age like weight, perhaps blood pressure, diabetes and cholesterol and so on. All we can do is give it a sincere helping hand. But if those things can be controlled from the beginning you give yourself a better chance of enjoying grandchildren and other events like festivities and family celebrations. The cost of managing our health rises very quickly as we age according to Medicare, which means our share of that cost rises too. Keep in mind that Medicare does not pay for everything.
10. Counting on social security for full support. Today, the best of the social security payment will cover only about 30-40 percent of your total costs in retirement. At best it was meant to keep food on the table and roof over your head. So, it is imperative that we should not be depending much on social security and create other means of sustaining ourselves like savings in our retirement.
11. Not keeping your skills marketable. There used to be a time when once we start a job in our youth, we retire from that job. That is a dream long gone; not even your parents would be talking about those jobs if they have retired recently. Now there is a strong need to know what skills are needed in future markets every five years or so and prepare/train ourselves for them while we are working in our present job. Overall, people will change their jobs every five years or sooner (or at least they are expected to) which means we are considering 7 – 8 job changes over our career, if not more. Knowing what skills we have currently and what skills are needed in the future is almost a must and we must be working towards getting that new job in the near future all the time. Such is the world of work we have inherited and live in now.
12. Not having a will (package). Almost half the population in the United States doesn’t have a will. When asked why not, the first answer I get is usually “everything I have will go to my wife (or husband).” OK, what about when that second spouse dies. I cannot possibly over-emphasize the importance of having a will, actually the package which consists of four important documents including a will. It is possible to use a free online package for such purposes (which is better than not having a will) but generally it is best to get an attorney involved to draft such documents.
You must go prepared with all the answers for the way you wish to get these documents prepared and some advance thought is required for that before you get to an attorney. Most attorneys can provide a checklist before attending an appointment.
Some Tax Tips to Act on Before the Year is Over
1) Consider getting rid of poor performers from your investment portfolio. Capital losses you incur can offset your capital gains plus up to $3,000 of your other income. Excess losses can carry forward and can help offset future gains and income.
2) If you know that you cannot itemize deductions, then make sure that you have at least $600, per couple, to claim for donations. This should be in cash and not in goods.
3) Kids are back in college, so let’s make sure you get all the education tax breaks that you can. If you are under a certain income limit you can claim the education expenses for your children which include room & board, tuition, books, supplies, fees, computers and internet access. The American Opportunity tax credit is worth up to $2,500 per student for each of the first four years of college.
4) Maximize your IRA deductions. You have until April 15, 2022.
5) Contribute fully to your 401K; if you are not then you are leaving money on the table.
6) It is best to review all your itemizing items to ascertain if you can take itemized deductions every other year. You can defer, for one month, payments of mortgages, property taxes medical payments and donations to January or bring them all in December depending on which year you wish to take the itemized deductions.
7) It is best to report transactions if you have investments or inheritance in a foreign country. IRS is getting strict about reporting all such transactions on your 1040 at the tax filing time; please pay attention to that.
8) Give the gift of cash. You can give a gift up to $15,000 to any one person free of gift tax. If you’re married, you each can give a person up to $15,000 tax free — $30,000 in total. In most cases, the gift isn’t complete until the recipient of a check cashes or deposits it. So, confirm the recipient does this by the end of the year.
Also, contact your accountant or tax preparer for other tips that maybe specific to your financial situation.
Social security was never meant to completely replace your income in retirement; it never was and never will be.
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Mo Vidwans is an independent, board-certified financial planner. For details visit www.vidwansfinancial.com, call +1 (984) 888-0355 or write to [email protected].
