3 Things NOT To Do To Reach Financial Success
When planning for financial success, it’s just as important that you know what to do as it is to know what not to do.
That’s where many young investors determined to handle their financial planning on their own often make a mistake.
As a financial advisor in Scottsdale with years of experience in the financial services industry, I see it a lot – investors lose money without even realizing it. Below are 3 very common ways that many people regularly lose money each year. If you’re doing any of these, it’s an easy way to improve your financial picture fast.
1. Giving Your Money to Uncle Sam
According to IRS data, nearly eight out of 10 Americans receive a tax refund each year, and the average refund was more than $2,800 in 2016. While getting a check in the mail is always nice, remember, this isn’t a bonus or a gift. It’s actually a return of your money after you provided an interest-free loan to the United States.
Wouldn’t it make more sense for you to use that money instead of giving it back to Uncle Sam?
If you receive the average $2,800 refund, this could equate to $200 or more extra on your net paycheck each month. This can be put to work for your future by saving and investing it.
If you receive a tax refund every year, you may want to simply adjust your tax withholding with your employer so less is deducted out of your paycheck each month. Then, you can put that money to work either paying off high-interest debt or investing it in your future.
Now, if you’re one of the many people who has to pay the IRS come tax time, it is important that you are one of the 113 million who file your return on time and pay any taxes owed. If not, make sure to file for a tax extension. Bear in mind that, even if you file for an extension, any amount you may owe is still due on April 15. If it’s not paid, the clock starts ticking the very next day and penalties and interest will accrue on any outstanding amount you owe.
Here’s how late taxes can get you:
- Late Filing Penalty: This is typically 5 percent of the tax bill for each month (or part of a month) that the return is late, up to 25 percent
- Late Payment Penalty: This is typically 0.5 percent of taxes owed for each month after April 15
- Late Payment Interest: The interest rate equals the federal short-term rate plus 3 percent (set quarterly)
If you don’t pay what you owe on time, consider your options. For example, you can set up an installment payment plan with the IRS. If you do so, the late penalty drops to 0.25 percent per month, and you get as long as six years to pay off the debt. Remember, though, interest will continue to accrue until the balance is paid.
Another thing to remember when it comes to your taxes is if you charge what you still owe to a credit card, pay careful attention to the fees involved. For example, charging your payment to a debit card may cost a flat fee of $2.49 to $3.50. However, if you charge it to your credit card, your fee can range from 1.87 percent to 2.35 percent of the amount you charge. With a large tab, say $10,000, that’ll tack on as much as $235 – and that doesn’t even take into account the interest you’ll pay until the credit card charge is paid off!
The good news? You can deduct that initial fee on next year’s return.
If you do get your return filed in time and you’re all square on tax payments, good for you! However, it’s never too soon to start thinking about next year. There are moves you can make now to help lower your tax liability for next year. For example, you can max out your contributions to tax-advantaged retirement and health care savings accounts. And consider the merits of tax diversification, which basically means having both a retirement income source that is currently tax-deferred and one with distributions that won’t be taxable in retirement. Visit the IRS website for more information.
2. Paying Extra for Medical Bills
Insurance is already expensive. Don’t pay more for medical procedures than you have to.
This should make perfect sense, but surprisingly, overpaying medical bills happens all the time, mostly on accident.
Unfortunately, if you actually review your medical bills, it’s common to see extra procedures, incorrect charges and costs that were added inadvertently. So make sure to scrutinize your medical bills. According to the CEO of Medical Billing Advocates of America, an estimated 80 percent of medical bills contain errors.
If you have a high deductible, this may be causing you to spend far more than you need to.
Even common office visits can result in billing errors and high charges if any type of testing or diagnostic is involved.
With the billing error rate so high, it’s worth your time to review all medical bills you get very carefully before paying them. If anything looks unusual or overly expensive, call and ask about it. You can also research average prices for various procedures and services on the Internet. There are even services that will audit your bills for free and simply retain a percentage of the savings if they are able to reduce the bill for you.
Every time you receive a new medical bill, make it a habit to review it carefully. Research anything that looks unusual or overpriced.
3. Passing Up Free Money
Why would anyone pass up free money? Well, although this may sound like a no-brainer, a lot of people fail to take advantage of employer-funded plans, and therefore, pass up on free money.
Make sure you get your full employer match every year. Most companies that offer a retirement plan also offer something called an “employer match.” That’s where the company will match up to a certain percentage of your initial contributions. This will vary, but for an example, let’s say you are entitled to a 3 percent match. What this means is that for every dollar you contribute of your salary up to 3 percent, your employer will match it by giving you $1.
Yes, this is free money, and it is usually available to you every year.
Shockingly, it is estimated that more than $24 billion is lost by employees because they chose not to contribute enough to get their full employer match.
When was the last time you had your financial plan reviewed? ARQ Wealth Advisors can help. There are many ways to help increase your current income and help develop more tax-efficient income strategies, whether for next year or in retirement.
Contact us if you need help tailoring a strategy that works best for your individual situation.