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From the Mailbag

I’m facing a big tax bill. Every year I have trouble putting awayS1416-41 money for quarterly taxes. What’s a good trick to get money saved?

Here’s my favorite technique to save money: save into a central savings account that’s difficult to reach, then pay yourself a separate amount into checking from this fund. Have money automatically deducted from this central savings account each month for your tax bill before you pay yourself money to live so that you don’t face these huge bills.

It’s a horrible mistake to pay tax penalties. The IRS assesses a five percent penalty for every month you’re late filing. Then they tack on a half percent penalty per month on late payments. These amounts are on the overdue sum, not the entire tax due, and are capped at 25 percent.

The biggest problem I see?

People try to use discipline to fix their saving problem. Don’t trust your financial picture to your ability to be “disciplined.” Take 15 minutes with your bank and set everything up on automatic deduction. You’ll be happy you did the next time you encounter a large tax bill and the money is already saved.

Posted in From the Mailbag, Saving Money, Savings, Taxes | No Comments »
Posted by Miata | April 4th, 2012

From the Mailbag

S1416-41Miata,

Should I pay extra on my mortgage? I’m making a little extra money right now and I’m thinking paying off my house is a good idea.

- Jon

Hi Jon,

This is an intensely personal question. Certainly, less debt is always a step in the right direction, but there might be better choices to grow your net worth more quickly.

Here are a few areas to think about before tackling extra mortgage payments:

  • Is your credit card debt paid down? If not, this is a greater priority. Credit card debt is more harmful to your credit score and is usually at a higher interest rate.
  • Do you have an emergency fund? If not, put extra money into a savings account so that if you have financial trouble down the road, you’ll have funds available.
  • Are your long term goals met? If you’re saving enough for retirement, college or other priorities, then pay down your mortgage.

A mortgage is tax deductible, low interest debt in most cases. Because money paid into a mortgage can’t be used for other goals, I usually look toward other options before paying it down.

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Posted by Miata | March 13th, 2012

From the Mailbag

from-the-mailbag-150x150Abundance Bound,

I’m single and have no real possessions.  Do I need a will?

Although you may not need a will, you should be thinking about your estate plan. Here are some areas you’ll want to consider.

  • Investments and cash accounts. Add a TOD (sometimes called POD….”transfer/payable on death”) to your checking, money market and investment accounts. This gives someone your money when you pass away without it being hung up in court. IRA plans and 401k’s allow you to name specific beneficiaries on the account. Check these during open enrollment times to ensure you’ve picked the right people.
  • Health care patient advocate. Let’s pretend you have an accident and can’t talk to the doctors. Who will you allow to speak with medical professionals on your behalf? In most states, this person is called your “patient advocate.” Although it’s possible for a court to assign someone later, it’s a better idea to have this prepared in advance by an attorney.
  • Workplace life insurance. Even if you don’t have insurance outside of work, most companies give employees free insurance. Pick beneficiaries so this “free money” doesn’t go to waste.

While I’d say a will might be overkill, an estate plan covers all of these areas.

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Posted by Miata | February 3rd, 2012