Why Saving Just Three Dollars A Day Is More Powerful Than You May Realize
I meet clients every tax season who do not get back as much money in their tax return as they could or should. This is a function of three things;
One, they are not familiar with income-sensitive tax programs
Two, they are not engaging in tax planning because all their financial resources are needed to survive.
Three, related to the above, they waited until tax season to do tax planning.
There are several income sensitive tax credits and deductions. The two most common credits I see clients fail to optimise are the Premium Tax Credit (pays for health insurance) and the Retirement Savers Credit (now called Savers Credit)
The retirement savers credit provides a very generous tax credit for contributing to a retirement account. The credit can be as high as 50% percent. That means if you deposit 1000 dollars into your IRA/401k/Roth you could get a 500 dollar tax credit.
But wait!
If you put your 500 dollar credit into the account, you then could get a 250 dollar credit. Do this a few times; now you have turned 1000 into 2000.
Your employer may offer matching and the 2000 could become 3000 or even 4000
Not too bad, except for the fact that we need a thousand dollars to kick the whole thing off. Most people are staring down problem two and thinking where I am going to get a thousand dollars.
Well, if you don’t wait until last minute all you need to do is earn just three dollars extra a day. The earlier you plan for it, the easier it will be.
Maybe you can cut three dollars a day from the budget, or perhaps you can pick up some overtime. However, I’m sure you are already working as much as you can and have trimmed the budget.
The next option would be side hustles of some sort. I think side hustle have become a bit cliche everyone is talking about them, in part because they want to sell you some eCourse, guide or some other affiliate spam.
I have tested several side hustles and found very few pay a real living wage or even minimum wage. However, if instead of trying to make thousands of dollars a year, some side hustles could make you an extra three bucks a day.
If you qualify for tax credits, three dollars a day could be turned into a few thousand dollars worth of retirement savings.
Now keep in mind if you are already maxing out your tax credits, or your income is so low you don’t pay taxes then this plan won’t work.
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