Common Cents # 11 Finding More Money

 

In the past few weeks we have been talking about investing verses spending. Every penny we have we either invest or spend. If it is gone forever, we call it “spending,” if we can get it back later, we call it “investing.” Some things like food are obviously spending while other things like putting money in a retirement plan are clearly investing. Many things, like a house, are a little of both.

Today I want to talk about finding more money to invest, moving some of our money from the spending category to the investing category.

A big chunk of our income comes right off the top in the form of taxes. That is really spending because it goes to pay for things we all want, like highways, bridges, airports, national defense and thousands of other things. The basic principle of taxes is to pay all we owe, but not to pay any more than we need to. The trend toward DIY taxes has added billions to the nation’s coffers from people over-paying their taxes, but we will save that story for next tax season. The government will not return your money unless we ask for it – on the right forms.

The majority of people, 80% in fact, get a tax refund each year, not only from the IRS but also one or more states. A refund means that we have overpaid our taxes and we are asking the government to give back the part we overpaid. I cannot imagine very many of us, intentionally paying too much for a refrigerator or for clothing, and then asking the store send part of it back next year. No, we want to pay the correct amount the first time.  Adjusting our income tax withholding amount to more correctly reflect our taxes due will immediately put more investable money in our pockets. If we owe taxes on April 15, that is a good thing; it means we have delayed paying those taxes for the year and had access to those funds in the interim.

There was time not many years ago when we all paid cash for about everything. Forty years ago, I always had a couple of hundred dollars in my pocket. Now I have had the same two twenties for six months. Like most people, I always use plastic. Credit cards are safer than carrying cash, we don’t have to wonder if we have enough money in our pockets for an immediate need, and we get a statement every month telling us how much fun we had. Most cards even give rewards or cash back. What a deal, assuming we pay the balance every month. With interest rates of 15-20% and very high late charges, we can easily double the price of everything we buy if we have not developed good credit card practices. I heard someone say, “I want to charge my lunch, I don’t want to finance it for 36 months.”

Adjusting our withholding, have our tax returns completed correctly by someone like a tax professional who knows all of the legal procedures, and paying our credit card balance every month could easily put a few hundred dollars of investable money in our pockets each month.

More ideas to save money next month.