Budgeting Tips & Articles
Tax Time is Here Again
April brings both the joy of warmer weather and blooming flowers and the pain of the IRS tax deadline. For those receiving refunds this may be happy time and the forms were filed long ago. For those facing a payment or simply avoiding filling out the tax forms, April 15th is an ominous day. The good news is that there are ways to make it less painful.
For those dreading filling out paper tax forms or paying a fee to have someone else do their taxes the IRS provides free online filing for many taxpayers with an adjusted gross income of $57,000 or less through the freefile program. For a list of companies providing this service and additional details go to http://apps.irs.gov/app/freeFile/. A few of these programs also offer free electronic filing of Kentucky state taxes as well. To view a list of companies participating in Kentucky’s freefile program along with qualifications go to http://revenue.ky.gov/FFAOffers.htm. For those that do not want or are unable to use the software available there is also free tax assistance available at various locations that can be found by dialing 211 in the central Kentucky area.
Those facing a payment to the IRS can reduce this amount next year by adjusting the number of W-4 exemptions claimed. The IRS provides a very good online calculator that can help determine exactly what exemptions need to be claimed to eliminate the payment on next year’s taxes. The most recent pay stub for all jobs held will be needed to use this calculator. This calculator is located at http://www.irs.gov/Individuals/IRS-Withholding-Calculator.
For those receiving refunds: WOOHOO! An income tax refund can be a big boost to a tight budget or a fast way to fund a major purchase. The danger is that without a plan, that extra money can disappear before it is realized. Taking a vacation, buying that new TV, or taking a shopping spree can all be acceptable things to do provided it fits in a spending plan. If bills are late, the car needs maintenance, or there is no emergency fund those things need to be made a priority. Everyone needs to have at least $1,000 in savings for those unexpected expenses with an eventual goal of having an emergency fund with 3-6 months of expenses.
For those living paycheck to paycheck it may be wise to increase the number of deductions on their W-4 so that more money is coming in on every paycheck. The first step is to understand what money is coming in and where it is going. Creating a spending plan can help reduce the fear and stress of living paycheck to paycheck. Remember, a budget is simply the process of you telling your money what to do rather than wondering where it went. If an increase of exemptions is needed, the IRS calculator at http://www.irs.gov/Individuals/IRS-Withholding-Calculator is an excellent tool to make this adjustment as well. University Of Kentucky employees can adjust their W-4 withholdings at any time through myUK or by submitting a paper W-4 form to the payroll office. The W-4 can be printed at http://www.irs.gov/pub/irs-pdf/fw4.pdf.While specific investment and tax advice cannot be given, free counseling is available to all employees to help set up a spending plan, get out of debt, or answer other financial questions. Contact Michael Pelfrey to get started.
Magic Month Budgeting Tips
Employees who are paid every two weeks will receive three paychecks in March. This occurs two times per year and is sometimes thought of as magic months due to the extra income. The fact is that there is nothing magic about money and without making a plan, this extra income can disappear by the time April arrives.
This extra paycheck is an excellent time to start thinking about how our money is being spent. Do we have a spending plan to know where our money is going or do we always have too much month at the end of the money? Below is a list of simple steps to begin getting a better handle on how our money is spent:
- Track your spending – We donít think about what running through the drive-thru, getting a snack from the vending machine, or buying a drink to treat ourselves really costs us over time. Start writing down on a piece of paper or in your phone every time you spend money. $4 a day on cappuccino or a soda and snack adds up to over $1000 a year. Know where your money is going.
- Create a spending plan – We all hate budgeting because we have to face reality and tell ourselves no. While this is painful at first, gaining control of our money will give us more security over time. Doing this step will help us understand if our expenses exceed our income or if we should have money left after paying all of our bills.
- Understand our debt – Many of us do not really know how much we owe. Put together a list of all debts such as car loans, credit cards, and mortgages. Include the minimum monthly payment amount and the total amount owed. A great way to start paying down debt is to pay off the smallest debt first which provides encouragement and the emotional boost to start getting the next debt paid off.
If you are behind on any payments, the magic month provides an excellent opportunity to get caught up and hit the reset button on controlling your finances. If you are not behind, the extra paycheck can be used to set aside funds to make car repairs, replace an appliance, or save for a vacation or other spending. Just paying attention to our money is the first step to financial security.
Whatever situation you may find yourself in, employees can now get free and confidential help with personal finances. The MPM Group, which supplies supplemental benefits for University of Kentucky employees, provides a financial counselor in the employee benefits office who can meet one-on-one with employees or provide group education on personal finance issues. All information is free and completely confidential for regular faculty and staff (0.50 FTE or greater), and spouses. If you have questions or to schedule an appoint, contact:
115 Scovell Hall
Lexington, KY 40506