Prosper Newsletter: February 2007 > Financial
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
The Real American Dream
Before I entered the coaching program I was living what I thought was "The American Dream." I had a house, a car, and several credit cards all close to their maximum credit limit. I had a job and I was living paycheck to paycheck with little left over at the end of each month after paying the minimum payments on all my bills. I knew there had to be a better way to live, but I didn't think I would ever pay off my debts unless I was lucky enough to win the lottery. There just didn't seem to be any other way. I can't tell you how many times I answered ads for information on starting a home business, or some other plan to get out of debt, and every time it turned out to be another scheme that I spent money on and got nothing in return.
Since starting the coaching program I have learned to put my spending habits into perspective. Keeping a spending log helped me see how much money I was wasting each month. From this I learned how I could change some of my spending habits so that I could use more of my income to help eliminate my debts, and stop creating more debt. Installing the Debt-Free Software and learning to apply the Accelerator Margin to my debts has really motivated me to spend wisely. Seeing my debts decrease each month is really exciting. Knowing that all my debts will be paid off in 5 years and 7 months, instead of 19 years and 6 months by using the accelerator margin helps me stay focused on my goals to be debt free, establish my own business, and retire early with a secure retirement fund.
Anyone can purchase a program and try to make it work, but for me, one of the most valuable parts of this program was being able to work with a coach. His knowledge and enthusiasm motivated me to read the materials, listen to the CDs, and really believe I could succeed. Although I was very serious about making changes in my life, without my coach, I would not be where I am today. Through our sessions I really believed that he wanted me to be successful. He gave me the confidence I needed to start a business, and to stay focused on becoming debt free. He was, and continues to be, a tremendous support and mentor.
I feel that this program has given me a good foundation on which to build future success. By learning to control and eliminate debt, I can begin to build a secure future for myself, and my family. I have learned that it is possible to get out of debt, establish a business of my own, and create any kind of life that I choose to live, because I am in control and no bank or finance company will ever own me.
- Jackie K.
Ten Tax Tips
Expedite the Filing Process—Fill out the tax forms as soon as you can after January 1. If you find that you are owed a tax refund, file right away; the sooner you file your return, the sooner you will receive a refund. If you owe to IRS, file in early April so you can hang on to your cash longer and earn a return.
Filing Electronically—If you expect a return, file your return electronically. You return will arrive weeks faster and you can begin the process of accumulating interest on the funds.
W-4Adjustment—If you find you will have large return, it is time to evaluate your W-4 form and make adjustments to your withholdings. Your HR department can help you determine the appropriate exemptions or you can use the IRS Withholding Calculator on the IRS website: http://www.irs.gov/individuals/article/0,,id=96196,00.html.
Owing IRS—If you owe IRS money but find you lack the funds to pay the tax, send in your return along with the amount you can afford by April 15th. IRS will still assess a penalty, but it will not be as great as the late fee.
Above-the-Line Deductions—These deductions are expenses you can subtract from your income in order determining your adjusted gross income (AGI) on line 37 of your 1040. Some examples of qualified expenses that can help reduce your tax liability include: contributions to a Traditional Individual Retirement Account (IRA), Health Savings Account (HSA) contributions, moving expenses, self-employed health insurance costs and alimony payments. Contributions to a traditional IRA may be made as late as April 15, 2007, and still be eligible for a deduction in 2006.
Consider Itemizing Below-the-Line Deductions—Below the line deductions are deductions subtracted from adjusted gross income to determine taxable income. IRS allows two deduction options to reduce your taxable income: standard deduction and itemized deductions. Though itemized deductions are more complicated, it is generally more advantageous.
Maximize your Tax Credits—Tax Credits reduce the taxes you owe dollar for dollar. This means a $1 tax credit reduces your tax bill by $1, compared to an itemized deduction that only decreases your bill by a maximum of $.35. Take full advantage of tax credits available to you if you have children, adopted a child during the year, or have educational expenses.
401(k) Contributions—A 401(k) plan simply defers your taxes to a later date or retirement when you should be in a lower tax bracket. Maximizing your 401(k) contributions will reduce your taxable income today. The advantages are three-fold, you don't pay taxes on money contributed, your earnings grow tax-deferred, and the employer's matching contribution provides a higher return on invest (ROI).
Contribute to a Roth IRA—Contributions to a Roth IRA are not tax-free, but the earnings are tax-free. Additionally, Roth IRAs are not subject to the minimum distribution requirements common to traditional IRAs. You may contribute to a Roth IRA as late as April 15, 2007 for the year 2006.
Roth 401(k)—You might also consider contributing to a Roth 401(k) if your employer offers such an account. These accounts offer the same tax advantages of a Roth IRA, but unlike regular 401(k) contributions, are not excluded from your taxable income.
As always, make sure that you consult with your personal tax advisor before implementing any of these tax-planning strategies.
Grocery Shopping
There is a smarter, faster, cheaper way to shop, and you could really save a lot with these tips. An average household buys about $5,000 of groceries a year. No matter how much you spend, there is room to save.
Grocery shopping and preparing meals can save a lot of money over eating out. One of the best ways to save money is to avoid wasting food. You probably don't realize how much money it costs to waste food.
Shopping at clubs like Costco or Sam's can save money. They do have good prices but often require you to buy large packages, so don't buy more than you need. Super centers like Wal-Mart or Target may also have low prices, but they are not a good choice if you are in a hurry. Saving time can be as valuable as saving money. Take a shopping list, plan a route through the store, and shop when stores are least busy to save additional time. Self-checkout could also save time once you get the hang of it. Stores are designed to prolong your shopping trip, which causes you to spend more. Shop with this in mind and you can save.
Shopping online could save time, but factor in delivery costs. Some stores let you order online and pick up at the store. A new way to shop online is www.amazon.com. Most products are sold in large quantities, which may work if you have a large family or lots of storage space. Orders usually arrive in 5-7 days, so you do need to plan ahead.
The perfect supermarket does not exist. Consider shopping at one store for staple items and another store for fresh food. Some stores specialize and have better prices in one area. Products also typically go on sale at different stores at different times. If you watch the ads you can figure out the cycles and stock up on the right items at the right store at the right time. Store preferred shopper cards could save money. Some programs are better than others, and some will also double your coupons when using the card.
Store brand items are often made by national brands, but they are usually much cheaper. Watch out for placement of items in the store. Items at the checkout or deli counter could be priced much higher than similar items on the aisles. Prime sales space is at eye level. If you look up or down, you may find better deals.
Coupons are a great way to save money. The Sunday paper is one of the best places to get coupons, and there are some websites that offer coupons as well. Try www.coolsavings.com, www.valpak.com, and www.smartsource.com. You typically have to register on these sites to get the coupons. Coupons can save you money, but don't let them encourage you to buy things you would not ordinarily buy. Local store websites can be helpful as some have printable coupons or send you email updates about specials. Just be aware of privacy policy when registering for store or coupon websites.
