Kat’s Money Corner

The day after tax day....now what?

Updated: 2013-04-12T20:22:16Z


Did you wait until Monday to file your taxes? If you owed money, you were smart to wait. If Uncle Sam owed you, I hope you filed as early as possible.

Either way, completing your taxes is always an accomplishment, and a great learning experience. http://www.kiplinger.com/fronts/special-report/tax-planning/index.html

It’s always good to know exactly what you “took home” over the course of the year, and compare it against what you spent and socked away. Now it’s time to start planning now to hang onto more of what was left.

Think of this as the start of a new fiscal year. Instead of keeping the same budget, first look at what you can do without this year. Use today as an opportunity to set a smarter,tighter budget.

Senator Elizabeth Warren, a former Harvard Law School bankruptcy professor who helped form the U.S. Consumer Financial Protection Bureau coined the 50/30/20 rule of

thumb (www.amazon.com/All-Your-Worth-Ultimate-Lifetime/dp/0743269888) for after- tax income.

Here’s how it works:

•  50 percent “needs” – Look at your budget. How much do you spend on groceries, rent/mortgage, utility bills, car payments/maintenance, and auto/home/health insurance? It shouldn’t amount to more than half of your take-home pay.

• 30 percent “wants” – Protein is a need. The question is, will it be rib eye steaks or red beans and rice. Sure, both fall under groceries, but we all know which item is a want and

which is a need. You probably spend more on wants than you think, and a cut here and there can keep you under that 30 percent threshold.

• 20 percent savings and debt – Warren recommends using at least 20 percent ofyour after-tax income repaying debts and saving money in an emergency and/or

your retirement account. A mortgage payment or minimum payment on credit card debt is actually a need (which counts toward your 50 percent), but anything beyond

that is an additional debt repayment, which qualifies towards this 20 percent. http://credit.about.com/od/reducingdebt/tp/spend-tax-rebate-refund.htm

Wants? Needs? Sit down and honestly determine which is which. Then set a goal, brainstorm where you think you can make some changes. Sounds so easy, but in reality

is tough — yet critical to long-term financial success for most of us Those day-to-day challenges are often the hardest to overcome, but have the most gain over the long haul.

It takes 30 days to create a habit, so start with where you are and then add a new goalmonth by month:

Increasing your 401(k) contribution counts here!

Month 2 – Bring your lunch to work and save upwards of $25 to $50 per week. (That’s

$200 a month!)

Month 3 – Plan out your dinners each night of the week and save $100 or more vs. dining out or impulse grocery shopping.

So there’s as much as $500 extra this month alone, just from separating your wants from your needs and having the discipline to know and stick to the difference. The trick is

using that extra money to save or pay down debt, and not letting it get lost in the shuffle of life. Reducing debt also reduces stress, so there’s a whole quality of life element we

haven’t even touched on here that’s a huge added benefit! Focus on your needs, limit your wants, and make a plan to pay down those debts. Come April 15, 2014, the day after will look a lot brighter.

Kat's Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, whennot blogging or caring for her little one, is a manager with CommunityAmerica Credit Union. For more financial chatter, click http://twitter.com/savinmavens.

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