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Easy Ways to Save Money That Probably Never Crossed Your Mind

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While trying to save money and reduce expenses is very important, in many cases, it can seem like such a chore. It’s much easier to save money if it’s either done by doing something that’s fun to do or requires little thinking. Here are some ways to make sure you are not mindlessly spending and instead are saving towards your future.

Round It Up

One of the fastest-growing types of bank accounts is the round-up variety. These accounts round-up to the nearest whole dollar whenever you make a debit card purchase. The round-up amount is then automatically transferred from the checking account to the savings account. This is an easy and effective way to save money without even thinking about it.

Difficulty Makes It Easy

If you make it difficult to withdraw your money, you will make it easy to save your money. Set up your automatic deposits to a bank that is not within easy walking distance or that is out of the way of your normal route. If it does not offer online banking, it’s an even better option. Don’t accept a debit or ATM card. In fact, try to have the money deposited into accounts that charge heavy fees to withdraw it, such as brokerage accounts or IRA plans. This way you’ll be even less inclined to take it out and spend it.

Stop Paying So Much in Interest

If you are like most adults, you have student loan debt that you’ll be paying on for quite a while. This often means payments to several different lenders with fluctuating interest rates that may be the most favorable terms. If this sounds like you, then it’s time to get a personal loan for student loan consolidation. If you have kept up on your payments, then you should qualify for a low-interest loan that will consolidate all of your student loan payments into one private loan payment. This makes it easy to repay your obligation while saving a bit of money while you’re at it. In fact, if you figure the difference in payments, you can take that difference and put it into your savings account to build on a monthly basis. Since you were already used to paying that amount to begin with, there won’t be a change in lifestyle.

Look at Recurring Payments

Even the best savers have recurring payments that they may have forgotten about. Look at your monthly bank statement and try to identify any subscription-based transactions that could be done away with. Things like magazines, streaming entertainment, or gym memberships that are never used are excellent things to can cancel, especially if they are rarely used. You can get magazines and DVDs from your public library for free, and there are plenty of ways to exercise without spending a dime. After you do this, call your phone, internet, and insurance providers and go over the bill with them, trimming away the fat where you can. In most cases, you won’t notice a difference and you’ll be able to stop spending money on things you either rarely or never used in the first place.

Learning Personal Finance From The Military

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personal finance lessons from the military

I had a lot of time to spend learning personal finance tricks from the military. I spent nearly 14 years serving in the U.S. Air Force, and while I was not a part of a military finance operation (military finance is a topic for another day) I did work as a reporter for Air Force News Agency and as such did a lot of writing about military money matters. Believe it or not, financial responsibility is a major part of a military career and as an officer or enlisted member you can get into a lot of trouble if you don’t handle your finances properly.

Personal Finance Lessons

What did I learn from those experiences? One big one for those (me) who hadn’t earned quite that much money in one place before was managing my current income while planning on future needs. The first time you’re forced to reconcile you spending today with the big car payment coming tomorrow, it can be a real eye-opener.

What I took away from this as a very young person was that I needed to look at my finances like a chess game instead of…well, maybe poker.

Another lesson I learned was how to think like a business person when trying to work out typical personal finance issues like an auto loan.

Interest And Other Expenses

The military has an option for those who are being assigned or reassigned to a new base in the U.S. or overseas; you are allowed to apply for an advance on your pay which is then paid back over a fixed period of time by a deduction from your military pay.

That sounds pretty straightforward, but once I started doing the math on this “advance pay” I realized that what I had been given access to was an interest-free loan with no fees to pay of any kind. Let’s say a month’s pay for a junior enlisted person is $3000.

That is NOT an accurate number, it’s an arbitrary one. But for the example, we’ll take a single month’s pay and divide it over 12 equal payments and add five percent interest. This $3K loan costs you over $200 in the interest fees alone, let alone the origination fee your lender will hit you with.

I wasn’t getting “free money” as much as I was given a “free loan”. And that woke me up to paying attention–a LOT more attention–to the costs of things.

Add It Up

How much does your GrubHub delivery order cost if you don’t use GrubHub but order in person instead? Those extra costs–the delivery fee, the driver’s tip, and processing fees–add up and if you look at a year’s worth of those fees and do the math, you begin to see what I was seeing way back then.

For me personally the moral of the story is to pay attention to the add-on costs of EVERYTHING. The same way I think people should feel a wee bit insulted when offered 10% off (because they are just basically waiving the sales tax instead of giving you a real discount) on something, I think people should feel insulted when they get socked with these hidden or extra fees they (likely) don’t see coming until after they have added up those costs over time.

 

What Is The Best Way to Pay Capital Gains Taxes?

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What Is The Best Way to Pay Capital Gains Taxes?

It’s always nice to sell something for more than you paid for it. However, that sometimes means that you have “capital gains.” And that means that you have to pay capital gains taxes. What is the best way to pay those to maximize your profit?

What Are Capital Gains?

You purchase an asset. Later, you sell it for a profit. That’s all that capital gains are. Typically, they refer to the profit that you make when selling property, land, a business, and luxury items including art, antiques, and boats. You also can have capita gains from the sale of stocks, bonds, and other investments.

Short-Term vs. Long-Term Capital Gains

If you buy and sell the asset within one year, it’s typically considered short-term capital gains. Those are taxed at regular income tax rates.

On the other hand, if you wait over a year from the time of purchase to sell the asset, it’s typically considered a form of long-term capital gains. Long-term capital gains are taxed at lower rates than short-term capital gains. Therefore, if you want to maximize your profit by reducing your taxes, then often you’ll want to wait until after that one year mark to make a sale.

Tip: If you are planning to sell your personal real estate, make sure that you’re aware of the exemptions for capital gains taxes on a primary residence. If you live in the house as your primary residence for long enough then you can avoid capital gains tax at the time of the sale. Therefore, timing is everything!

Net Capital Gains

You can have capital losses as well as capital gains. For example, let’s say that you sell a stock for $1000 less than you paid for it. That’s a capital loss of $1000. Now let’s say that in the same year, you sell a stock for a capital gain of $1000. You essentially break even. In terms of taxes on your capital gains, you can use the capital loss to offset the capital gain. So, you get taxed on your net capital gains, not on each capital gain. Note that net capital gains apply only to investments, not to other types of purchases.

Therefore, you might want to consider multiple big ticket investment sales in the same year. Do you know you want to sell something that you have to take a loss on? If so, it’s great to do that in the same year as a big capital gains sale. The loss will offset the gains and reduce what you owe in taxes.

There is a maximum that you can deduct each year in net capital losses. However, you’re allowed to carryover the extra into the following year as a new deduction. Make sure that you’re aware of these types of options.

Likewise, if you realize midway through the year that you’ve accrued a lot of income in capital gains, then you might want to assess potential investment sales for the rest of the year. If they’ll be a loss, then you want to sell before the end of the year in order to offset your capital gains. On the other hand, if they’ll turn a profit, you might want to hold off until the following tax year. It’s important to pay attention to the timing of your asset sales for this reason.

Your Income Affects Your Capital Gains Tax Rate

Finally, you’ll want to take your overall income into consideration. Capital gains are taxed differently depending on your income. For 2020-21, the capital gains tax rates are for single filers are:

  • 0% for income at or below $40,000
  • 15% for income $40,001 to $441,450
  • 20% for income at or exceeding $441,451

Therefore, if you’re right around the $40,000 income mark (or the $441,450 mark), then you might want to review sales and income carefully before proceeding with a sale in any given year. This strategy is called harvesting your long-term capital gains. Rates differ for married couples, heads of household, etc. For example, the 0% rate is doubled to $80,000 for married couples filing jointly.

What Is The Best Way to Pay Capital Gains Taxes?

Timing your sales with respect to how long you’ve had the asset, what your income is for the year, and our overall net capital gains will all assist you in reducing the amount that you have to pay in capital gains taxes. Be smart ahead of time and you won’t have to pay as much at tax time.

Ultimately, however, if you have short-term capital gains, you have to pay taxes on them. If you have long-term capital gains are earn an income higher than the 0% rate shown above, then you have to pay taxes on them. Therefore, you’ll want to learn about the best way to pay those taxes.

IRS Forms and Tips

The IRS offers the following forms and information to assist you in calculating and paying your capital gains tax each year:

  • Use Form 8948 to report your sales. This form will assist you in calculating your net capital gains for losses.
  • Schedule D on Form 1040 is used to summarize your capital gains and losses.
  • There is an additional Net Investment Income Tax for people who make a significant amount of money on investments. If this sounds like it applies to you, then make sure that you review those rules.
  • If you owe taxes on capital gains, then you might need to make estimated tax payments. Therefore, if you buy and sell stocks and other assets regularly, then pay attention to this. Failure to make those estimated tax payments could result in paying more over the long haul.

If you don’t pay estimate taxes then you’ll need to pay your capital gains tax at the time that you do your taxes each year. If you paid attention to the timing of sales during the year, then you should be able to limit what you owe. However, if you do end up owing taxes, it’s best to pay them right away. If you are unable to do so, then you can apply for installation payments to the IRS. However, you end up paying more over time if you do so. Therefore, any time that you make a big sale, you should put some of that money away in savings in anticipation of paying taxes on it the following April.

Bonus Tip: Maximize Your Retirement Contributions

Make sure that you’re putting as much money as allowed into an Roth IRA or Roth 401(k). These are tax-exempt accounts. So even though you earn interest on the money that you put in there, you don’t have to pay capital gains tax when you withdraw the money.

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Long and Short-Term Gains: What Are the Tax Implications?

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Long and Short-Term Gains Taxes

Two things in life are certain: death and taxes. However, the American tax code can make it very difficult to determine exactly how much you owe the federal government. It becomes even more complicated when the IRS sets varying rates on different kinds of income and fluctuating taxation brackets. However, arming yourself with information can save you a ton in taxes. That is why every investor should understand how long-term and short-term capital gains will affect their tax return.

 What’s the Difference Between Long and Short-Term Gains?

Capital gains are the profits earned from selling your assets. They occur when you sell your asset for more money than you originally paid. Assets come in many forms. Some of the most common types include stocks, bonds, real estate, businesses, vehicles, jewelry, and precious metals. But, people often forget one very important detail. When you sell an asset, you must pay the capital gains tax based on the length of time you held it.

The federal government categorizes capital gains as either long-term or short-term. This designation determines the amount of taxes paid on an asset. Long-term capital gains are generated from assets that you have held longer than one year. Conversely, short-term gains are from assets that you had less than a year.

Taxation of Long and Short-Term Capital Gains

There is no way around the capital gains tax: you will have to pay taxes any time you sell off assets. However, the rate you pay depends on the holding time. For clarification purposes, the holding period begins the moment you acquire the asset. It lasts until, and includes, the day you sell it.

Taxation of Long-Term Gains

Since the Tax Cuts and Jobs Act (TCJA) in 2018, the treatment and taxation of long-term gains has changed. Prior to this, the brackets closely reflected the income brackets. However, the brackets were reconfigured under this new piece of legislation.

In general, the rates on long-term gains are more favorable. The government taxes a percentage of your long-term gains according to graduated thresholds of taxable income. These thresholds change from year to year. However, most taxpayers pay a rate of 15% or lower.

Tax Rate on Long-Term Gains

Taxation of Short-Term Gains

Unfortunately, short-term capital gains are taxed like ordinary income, meaning you will usually pay more. You income includes your salary, wages, and gains from any investments you hold. The percentage is determined according to your tax bracket. The U.S. has seven federal tax brackets based on income, with rates ranging from 10% to 37%. One thing people often fail to consider is the added gains will increase your overall income. Not only could it push you into a higher tax bracket, but also increase the taxation rate. Depending on which tax bracket you fall into, the gains tax could be a significant amount of money.

Tax Rate on Short-Term Gains

Capital Gains Tax Considerations

In addition to how long you have held an asset, there are a few other tax implications and considerations when it comes to long and short-term gains.

State Taxation of Capital Gains

Each state has different tax laws as well. So, whether or not you pay state taxes on capital gains depends where you live. Some states do not have income taxes. Therefore, they do not calculate capital gains taxes in Alaska, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming.  If you are a resident of Colorado, Nevada, or New Mexico, you do not pay any capital gains taxes either. Taxpayers in Montana also enjoy a credit to help reduce the final totals owed to the IRS.

Capital Gains for Retirement Accounts

Eventually, you will also need to pay taxes on your retirement accounts too. However, you can defer tax payments on IRAs and retirement accounts until you withdraw money from them. When it comes time to pay though, the federal government will still tax it as ordinary income. Even if profits were generated from long-term gains, you do not qualify for the lower rates.

Exceptions from the Capital Gains Tax

As with all rules, there will always be exceptions to them. Here are a few you should be familiar with.

  1. All collectibles are taxed at 28%. This includes any antiques, art, jewelry, coins, precious metals, or valuable collections. This is especially important when dealing with questions of inheritance and transferring items from estates.
  2. If you sell your principle residence, you can exclude $250,000 of your capital gains from your taxable income. However, there is some fine print you will want to read twice. You must have owned and lived in the property for at least two years in the five years prior to the sale. But, if you qualify for the exemption, it could save you a ton of money in taxes.
  3. The Net Investment Income Tax (NIIT) tacks an additional 3.8% of capital gains taxes if your income or investments exceed certain maximum. This is usually applied to high earners who also have large capital gains on income generated from interest, dividends and other investments.

When Taxes Come Due…

At the end of the day, the tax collector comes round to collect his dues. However, if you are well-informed, it could help you avoid paying more than you need to. First, you must remember that your net gains  are calculated on a sliding scale. The price you paid, less depreciation, and costs incurred from the sale or improvement of the asset could decrease the total due. These factors all contribute to the final tally of your capital gains taxes.

It is also important to note here that you are also able to minimize capital gains taxes with time. As stated above, long-term gains receive much better rates. If you hold the asset until it can be qualified as long-term, you will likely pay less in taxes. So, if you are thinking about selling your newer assets, you may want to consider holding on to them until you can apply the lower rate.

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Reddit and Finance: What the Site Can Teach You About Money

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Reddit and Finance

Are you on Reddit?  If not, you may be surprised to discover that it has an active personal financial section.  If you become a member, you can post questions there, and you’ll often get 20 or more responses.  You can also just peruse the Reddit and finance section and find topics where you can expand your personal finance knowledge.

What Reddit Can Teach You About Finance

The better question is, what can’t Reddit teach you about finance?  This site is a wealth of financial information.  (Excuse the pun!)

Interactions on Reddit Finance

There are currently over 14 million members in the Reddit personal finance section.  This group is extremely active and polite.  I know finding kindness on the Web can sometimes feel as rare as spotting a unicorn, but the people in the Reddit personal finance section generally seem to want to help one another and share information.

What Is Discussed?

Everything and anything!  You will find a wide range of topics.  For instance, recently an 18-year-old asked for finance advise as she prepares to move out—how much to budget for rent and utilities, where to buy the cheapest, quality furniture, etc.

Reddit and Finance
Photo by Jonny Rothwell on Unsplash

 

In the subreddits, a man is selling his house, but the house requires a new roof at the tune of $18k.  Should he replace the roof before putting the house on the market?  The advice he received was very good, including the best idea—put on the new roof, and then list the house for $20k more than he was planning to list it for.

Peruse the site, and you’ll find suggestions for everything from personal finance books to read to real estate speculation.  You’ll find people giving advice about how to prepare financially to die.  Sure, the topic sounds morbid, but the person writing just had a parent die and then came to Reddit to suggest all of the things the parent could have done to make it easier on the grown child settling the parent’s affairs.  That’s advice we could all use.

Subreddits

Under the Reddit Personal Finance category, there are many subreddits (subcategories) including:

  • Almost Homeless (31k members)
  • Career Guidance (265k members)
  • Eat Cheap and Healthy (2.9 million members)
  • Entrepreneur (907k members)
  • Financial Independence (865k members)
  • Meal Prep Sunday (2 million members)
  • Military Finance (18k members)
  • Relationships (3 million members)
  • Student Loans (100k members)
  • What Car Should I Buy? (110k members)
  • Credit Cards (306k members)
  • Frugal (1.7 million members)
  • Investing (1.7 million members)
  • Jobs (51k members)
  • Legal Advice (1.5 million members)
  • PF Jerk (21k members)
  • PF Tools (7k members)
  • Real Estate (243k members)
  • Tax (116k members)

In addition to these subreddits, you can also filter your interest further.

If you don’t live in the United States, you can choose regional subreddits by country.

Or, you can filter by flair, which is a bit like filtering by tags on a blog.

Having so many subreddit options makes it possible for you to post a question and make sure the right people answer.  It can also make for entertaining reading, especially for some of the subreddits like relationships and PF Jerks.

Final Thoughts

You may never have connected Reddit and finance, but surprisingly, the site can teach you a great deal about personal finance.  In addition, the site can also serve as a springboard to more standard personal finance information found in books and other resources.

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8 Financial Benefits of Waking Up Early

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financial benefits of waking up early

Are you the type of person who enjoys sleeping in as much as possible? If so, then you might find yourself missing out on the financial benefits of waking up early.

1. The Early Bird Catches the Worm

People who wake up early are more successful in their jobs according to at least one study. Moreover, they have higher job satisfaction.

The first part – success – seems immediately obvious. If you’re up and at ’em then you’re taking maximum advantage of work opportunities. Therefore, your chances of success go up accordingly.

But what about that second part – job satisfaction? If you’re naturally prone to sleeping in then you might think waking up early would make you hate your job. However, if you love your job then you might want to wake up and get going.

You don’t just get the financial benefits of waking up early because you woke up. It’s the fact that you’ve taken the time to find something that makes you WANT to wake up early and go do the work that really makes the difference that leads to success. That said, you can “fake it ’til you make it” by establishing the habit of waking up early starting now. As you develop the habit, work on what would make you enjoy waking up earlier more.

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2. Early to Bed, Early to Rise …

“makes a person healthy, wealthy, and wise …” The same study showed that people who woke up earlier thought of themselves as healthier than people who chose to sleep in. Lingering in bed might correlate with depression or another mental / physical health challenge.

In contrast, waking up early correlates with health. Health challenges can seriously impact finances. Therefore, the healthier you are, the better financial benefits you’re likely to reap. If waking up early is a sign of health, then developing habits that allow you to rise earlier might be financially beneficial.

3. Feeling Good About Yourself

The Ladders points out that waking up early to start work can help build confidence. You might also simply feel virtuous being up and at ’em before everyone else. Starting off your day on this foot can help you feel like you are ready to take on the world. As you enter the regular workday, you’re a step ahead of someone who has just rolled out of bed after hitting snooze five times. You’re ready to go. And that means you’re ready to earn.

4. Doing What You Love

You may or may not ever have the opportunity to do what you love as a full-time career. But you can take those early morning hours to do what you love. And you can build it into a side hustle, part-time job, or retirement business. Thus, you not only reap the financial benefits of waking up early, but also get the emotional and creative benefits of building n ew opportunities doing something that you love.

5. Preventing Inertia

If you have the ability to wake up whenever you want, and you choose to sleep in, then you might be debilitating yourself with inertia. Lazy mornings that linger into the afternoon can wind up with you at the end of the day feeling like you wasted the whole day. And then you just do it all over again.

This feeling leads to a homeostasis where you’re doing “all right” but aren’t really maximizing your time. One of the financial benefits of waking up early – and getting productive at the start of the day – is that you circumvent this inertia. In fact, studies indicate that simply learning to wake up early makes you a more proactive person in your own life.

6. Time to Plan, Not Simply React

If you’re becoming more proactive in your life then you have the ability to set and meet long-term goals. Waking up early gives you the time and space to think ahead. You can problem-solve, schedule, and organize your work life in those early morning hours. Therefore, you don’t just find yourself rushing out into the day and then reacting to whatever happens. You have more control over your own life, which leads to sounder financial decisions.

7. You’re Earlier Than Others

On the one hand, this is obvious. But how exactly does this translate into the financial benefits of waking up earlier? Here are some examples:

  • Your commute might be easier, saving you time which translates to saving money.
  • You are prepared for early-morning meetings so that they go well.
  • If you have a boss that values your early arrival, then you win points with the boss.
  • If you work in a global business, such as finance, then starting early could open you up to different, better markets and opportunities.

Additionally, getting to work early gives you time to settle in. Therefore, when people start to stream in to the office, you might be ready to give them your attention. Coming from a place of peace, instead of rushing, you’re able to meet them from a positive viewpoint. As a result, you build those relationships. Those relationships can become invaluable networking resources over time.

8. Frankly, You Just Get More Hours in the Day

On one hand, you don’t want to work yourself to the bone. After all, you need work-life balance. On the other hand, waking up early can give you a few more hours in the day to get things done. Maybe you’ll spend that time doing work that financially benefits you immediately. Alternatively, you might rest, exercise, socialize or do other things that benefit your overall health and wellbeing. Either way, you set yourself up for success.

That said, don’t try to cram too many hours in one day. Staying up all night then also waking up early means burning the candle at both ends. Instead, get the right amount of sleep … but then get up early and get going! That’s the only way to begin to reap the financial benefits of waking up early.

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