Reevaluating
your financial standing at the start of the year isn't just good practice; it's
a cornerstone of building lasting wealth and security.
As
we turn the pages of the calendar to a fresh year, our thoughts often gravitate
towards personal improvement. This month, the collective consciousness seems to
be pulsating with resolutions – from embarking on dry January to adopting
healthier eating habits. But amidst these well-intentioned aspirations, how
often do we pause to consider the health of our finances? This article, drawing
insights from the views of many certified financial planners, delves into three
critical steps for nurturing financial growth by year’s end.
Reassessing
Your Financial Landscape
The
start of the year presents an ideal opportunity to reassess our financial
status, an exercise of paramount importance. Most financial planners recommend
a comprehensive review of the prior year's spending. Essentially, this involves
examining how you managed your finances over the past year to evaluate its
effectiveness. Such introspection includes identifying unforeseen expenses,
evaluating the achievement of your savings goals, and deriving valuable lessons
from your financial experiences in the previous year.
Updating
your budget is just as important. Given the present economic environment with
its rising costs, it's essential to adjust your financial plans accordingly.
Financial planners often point out that the period after the holidays is key
for managing finances wisely. Your revised budget needs to reflect these
increased costs and should incorporate a plan to cut back on spending,
essentially pulling in the financial reins.
Preemptive
Tax Planning
The
mention of tax season typically brings about a sense of unease or worry. This
reaction is often due to the procrastination habits of many when it comes to
handling their taxes, a concern echoed by numerous financial experts. These
experts consistently recommend an early and proactive stance towards tax
preparation. The primary source of tax-related stress is the all-too-common
practice of delaying the process until the eleventh hour. In contrast,
initiating tax preparations early offers several advantages. It not only
facilitates a more thorough and precise filing process but also provides an
opportunity to identify and take advantage of potential deductions and credits.
Such an approach not only minimizes last-minute panic but also maximizes the
chances of a favorable financial outcome, turning a traditionally stressful
period into one of strategic financial management.
Establishing
a Financial Safety Net
Perhaps
the most critical step towards financial security is the establishment or
enhancement of a nest egg or emergency fund. In essence, a nest egg provides
peace of mind because it prepares you for any eventuality. The underlying
principle is straightforward yet significant – life is full of uncertainties.
Events like job loss, unexpected health issues, or urgent home repairs can
occur suddenly. A substantial emergency fund not only offers tranquility but
also acts as a defense against accruing debt. Having funds set aside means that
in times of need, you won't have to resort to loans or high-interest credit
cards for financial support.
The
bottom line is unmistakable: begin saving now. Committing to grow your nest
egg, even with modest contributions, can yield considerable progress by the end
of the year. This pursuit is more than just a financial activity; it represents
a move towards lasting financial stability.
Broadly
speaking, as we embark on our various resolutions this year, let us not neglect
our financial well-being. By reviewing and updating our budget, preparing early
for tax season, and building a robust emergency fund, we can ensure that this
year brings not only personal growth but also substantial financial prosperity.
The good news is that there are many insights from financial planners that
provide a roadmap for this journey, one that promises a destination of
financial resilience and growth by year's end.
Henry Ford's Model T, which came out in 1908,
changed how cars were made. He used an assembly line to build them, which made
it much faster and cheaper. This meant that more people could afford to buy a
car, so they had more options to choose from when they wanted to buy one.
Today, when you are getting a car, there are even more choices and other things
to think about. Simply put, it is really not just about choosing what kind of
car and model you want, but also deciding if you want to buy a car that has
never been used before or one that someone else owned. A brand-new car might
have a really good guarantee and all the newest gadgets, but it will probably
cost more money than a used car, and it will lose its value faster over time. Sometimes
it can be like choosing between a shiny new toy that costs a lot but loses its
value quickly, and a pre-owned toy that costs less and keeps its value longer.
I will put all the cards on the table for you here.
Choosing the Right Ride: The Differences
Between New vs. Used Car Explained
If we want to know the differences between a
used car and a new car, we will consider things like warranty, price,
insurance, technology, maintenance, and depreciation.
Warranty
Buying a new car instead of a used one has
its advantages, just like catching a shiny new ball during a game. When you buy
a new car, it usually comes with a warranty. This warranty is like a shield
that protects you from most big problems and repairs that might show up in the
first few years. However, new cars don't usually need many repairs during that
time, so you mostly have to focus on taking good care of it, like watering a
little plant.
On the other hand, buying a used car is a bit
like adopting a furry friend who has been around for a while. It might not be
as reliable as a brand-new car because of its age. You might need to fix more
things on a used car, but those repairs won't be covered by a warranty like
they would be with a new car.
But wait! There's another option called a
certified pre-owned car, or CPO car for short. Buying a CPO is like finding a
treasure that has been inspected and fixed up by the manufacturer. Some CPO
cars even come with a warranty, like a safety net for unexpected troubles.
However, if you decide to go with a used car, it is a good idea to save a
little money each month, just in case you need to pay for repairs. You can also
read Consumer Reports and other reviews from people who don't take sides
to help you pick a car that has been doing well.
With all the advancements in technology, cars
have become more reliable, like a trustworthy friend. Many models don't need
repairs until they have been driven for more than 100,000 miles, which is equivalent
to traveling around the world a few times. By that time, the car might be close
to 10 years old. So, if you buy a used car that is three years old, you can
drive it for five years without worrying too much about major repairs. You
might even be able to sell it for a price very close to what you paid, like
passing it on to someone else who will take good care of it.
Top of Form
Price
When it comes to price, new cars usually put
a bigger dent in your wallet compared to used cars. It is like buying a
brand-new video game console versus a gently used one. To sweeten the deal, the
dealer might even offer you a special financing plan for new cars with a lower
interest rate. This is like getting a discount on the interest you have to pay
over time. In fact, some dealerships might go all out and offer you a loan with
zero interest for new cars. And that is like having a magical money genie
granting your wishes!
But hold on,
don't lose hope if youare eyeing a used
car instead. While you won't find those zero-interest loans for used cars,
there are still good financing options available through your local bank or
credit union.
The truth is
that your options for buying a car might depend on whether you can get a loan
or if you will need to pay in cash. It is
a bit like playing a game where you have to meet certain requirements to move
to the next level. If you qualify for a loan, it opens up more possibilities
for you. But if you are planning to pay in cash, it might be easier to save up
for a used car since they usually come with a smaller price tag.
Insurance
Did you know that the type of car you choose
can affect how much you pay for insurance? One can say that this is just like
picking between two different paths with different costs. If you go for a used
car, depending on the model, your insurance rates might be lower compared to a
new car. One reason for this is that it doesn't cost as much to replace an
older car as it does to replace a brand-new one. Since it is cheaper to replace
an older car, insurance companies may charge you less money for coverage. It's
like catching a break and paying less.
Now, if you are in your early twenties and
facing high insurance rates just because of your age, there's a way to save
some money. Instead of buying a new car, consider buying and insuring a used
car. By choosing a used car, you might be able to lower those high insurance
rates and keep more money in your wallet.
Technology
New cars come with the newest technology, and
that can bring some cool benefits. One advantage is that new cars often have
better gas mileage, which means they use less fuel and save you money at the
gas station. It's like having a car that sips fuel instead of guzzling it down.
Not only that, new cars also tend to have lower emissions. That means they
produce fewer harmful gases that can harm the environment. Another great thing
about new cars is that there are more options for hybrid cars. These cars use a
combination of electricity and gasoline, and they can save you even more money
on transportation costs. It is like having a super-smart car that knows how to
save you money while getting you around. Oh, and let's not forget about the
improved technology in new cars. Today, buying a new car is basically similar
to buying a mini-computer on wheels! You can easily connect your smartphone to
the car's system, listen to your favorite tunes, and even use GPS to find your
way around. Owning a new car in this decade is like having a personal assistant
right in your car, helping you stay connected and entertained on your journeys.
Depreciation
One important thing to understand is this:
buying a car isn't like making an investment that grows over time. Cars are
like special possessions called assets, but they lose value as time goes on.
It's a bit like having a toy that becomes less valuable as you play with it.
When you buy a brand-new car, it starts losing value as soon as you drive it
away from the car dealership. Here's another interesting fact: a new car
experiences its biggest drop in value during the first two to three years. It's
like the car is in a race to become less valuable quickly. So, if you
decide to buy a new car, be prepared for it to lose its worth pretty fast.
Now, let us turn our attention to the used
cars. When you buy a used car, you let the previous owner take the biggest hit
in depreciation. They are basically the brave ones who take the initial drop in
value for you. By purchasing a used car and taking good care of it, you might
be able to get back a good chunk of your money when you sell it in the future. So,
remember, cars lose value over time, but if you choose a used car wisely and
maintain it well, you might be able to recoup a lot of your costs when it's
time to say goodbye to your four-wheeled friend.
Maintenance
When it comes to taking care of cars, used
cars can sometimes be more expensive to maintain. Thus owning a used car is
similar to having a pet that needs more attention and care because it is old.
Since used cars have been driven before, they might need more repairs and
replacements for parts that wear out over time. Because used cars have already
been on the road for a while, there's a chance that certain parts may need to
be fixed or replaced sooner than in a new car. It's a bit like needing to visit
the doctor more often as you grow older. The cost of maintaining a used car can
add up over time, so it is important to be prepared for these additional
expenses.
However, it is worth mentioning that the cost
of maintenance can vary depending on the specific car and how well it has been
taken care of by its previous owners. Some used cars may require more attention
and money for maintenance, while others might have been well-maintained and
need fewer repairs.
To avoid surprises, it is a good idea to have
some money set aside for maintenance when you buy a used car. Taking care of a
used car properly and getting regular maintenance can help keep it running
smoothly and potentially reduce the overall costs of repairs in the long run.
So, What’s Your Pleasure?
If you care more about having the latest
technology than the price, then a new car might be the right choice for you. Plus,
if having a warranty is important to you, then a new car makes a lot of sense. However,
there's an exception to consider: you can also choose a certified pre-owned car
that comes with a warranty. This will be like having the best of both worlds. On
the other hand, if getting a good deal and a low price are your main
priorities, then buying a used car might be a better option. Used cars can
offer great value for your money.
No matter what decision you make, it is important
to either pay for the car with cash or make sure you can afford the monthly
payments if you choose to finance it. A good rule to follow is that you should
be able to pay off the car completely within three years. If the monthly payments
are too high and you can't pay it off within that time, then it is likely that
the car is too expensive for your budget. Before making a final decision, do
some research on the model you are interested in. Check out reviews and find
out if the car is reliable. If you are not very knowledgeable about cars, it's
a good idea to have a trusted mechanic look at the car, especially if it is a
used car.
Lastly, don't forget to shop around for the
best loan if you need to borrow money to buy the car. And don't be afraid to
negotiate the price with the seller to get the best deal possible.
Notes
Caldwell , M., & James,
M. (2022, April 1). Buying a New Car vs. Buying a Used Car: Which Should You
Choose? Retrieved from The Balance:
https://www.thebalancemoney.com/buying-a-new-car-or-used-car-2385961
Commonwealth Bank of
Australia. (2023). Should You Buy a New or Used Car? Retrieved from
https://www.commbank.com.au/articles/car-insurance/buying-new-or-used-car.html
Ford Motor Company. (2020). The
Model T. Retrieved from
https://corporate.ford.com/articles/history/the-model-t.html#:~:text=The%20Model%20T%20was%20introduced,of%20manufacturing%20the%20universal%20car.
Progressive Casualty
Insurance Company. (2023). Should I Buy a New or Used Car? Retrieved
from https://www.progressive.com/answers/buying-a-new-vs-used-car/
A new culture of frugality has emerged in America, one in which
thriftiness and the pursuit of deals have supplanted traditional brand loyalty
as the norm. More than three-quarters of Americans currently report that they
look through circulars and cut coupons before going shopping.
Adam Smith reportedly made the observation that humans are the
only animal that can strike a deal. This is especially relevant during times of
economic contraction. According to Valassis, a large corporation that
specializes in coupon services, consumers in the United States redeemed 3.2
billion coupons in 2009, which is a 23% increase from the previous year. Since
2010, there has been a steady increase in both the distribution of promotional
coupons and their utilization. In 2017 and 2018, the percentage of customers
who made use of coupons reached 90 and 94 respectively. In 2019, 92% of people
utilized coupons, and 45% of those people used coupons either often or very
often. Just 8% of Americans said that they never utilize coupons of any kind
when they purchase.
In the midst of the COVID-19 outbreak, over half of all Americans
(46%) searched for coupons for various household items. Other popular coupon
categories among Americans include restaurants (41%), groceries (40%), and
electronics (37%), according to patterns found in the June 2020 Coronavirus
survey of coupon usage. Thirty-five percent of shoppers also looked for coupons
in the beauty and health categories, 24% in the fashion category, and 23% in
the health category, respectively.
Although paper coupons of the traditional sort are experiencing a
renaissance, online coupons are garnering all of the attention. According to
research that has been published, the total value of redeemed digital coupons
was $47 billion in 2017. In the year 2020, digital coupons saw an increase of
five share points, bringing their total share of coupons redeemed in the United
States up to 27%. The entire amount of money redeemed through coupons in the
United States in 2022 was around $91 billion.
At a time when almost 8 in ten 10 Americans report that they are
living paycheck to paycheck and U.S. inflation rate is at 6.04% (which is
higher than its long-term average of 3.28%), it is possible that a renaissance
in the use of coupons is to be expected. According to Nielsen, a market
research company, the households who had an income of at least $100,000 in 2009
were the ones that redeemed the most coupons. This finding may come as a
surprise to you, but those that are better off are the ones who utilize them
the most.
From Paper to Pixels
Observers of the market have come to the conclusion that there
must be some truth to the assertions that the most recent COVID-19 pandemic
recession and the most recent spike in the pricing of consumer goods had a
long-lasting impact on American consumers. It is believed that a new culture of
frugality has emerged, one in which thriftiness and the pursuit of deals have
supplanted traditional brand loyalty as the norm. More than three-quarters of
customers currently report that they look through circulars and cut coupons
before going shopping, according to the research that has been published so
far. If consumers continue to behave in this manner even as the price of
gasoline continues to climb, as is to be expected, coupons will have solidified
their position as one of the most powerful weapons in the arsenal of the marketing
industry.
Paper coupons, especially those of the traditional variety, have
been the primary beneficiaries of consumers' efforts to save money through
couponing so far, despite the fact that digital couponing companies like
Groupon and others in its digital dealmaking ilk are currently the darlings of
the media. Approximately 85% of them are disseminated as loose inserts or
booklets, which are then secretly smuggled into periodicals, most notably
Sunday newspapers.
This is an extremely unusual piece of positive information for the
newspaper industry, which is doing everything in its power to maintain such a
rich auxiliary sideline. According to a study that was published by the Newspaper National Network
(NNN), which is a consortium of 25 newspaper companies, clip-out coupons
printed on newspapers' own pages (as opposed to loose ones that fall out when
you turn the page) are the most effective at getting users to switch brands,
trade up, or try something new. A significant proportion of marketers make
insufficient use of the clip-out coupons printed on newspapers' own pages.
It's possible. Nonetheless, it is abundantly evident that digital
coupons are the way of the future. When compared to paper coupons, redemptions
of digital or internet coupons accounted for 33% of all coupon redemptions in
the first half of 2021, while paper coupons only accounted for 24%. There is a
proliferation of online coupon aggregators, and print coupon producers are
setting up internet venues to sell their products. Users of digital technology
are more likely to be male, wealthy, and receptive to trying new things. The
marketing that reaches a consumer just as he or she is reaching for their
wallet is the most influential form of marketing there is. Discounts that are
provided either by smart phone or on-site kiosks are extremely powerful. When
retailers implement the increasingly common strategy of letting customers
download digital coupons onto their loyalty cards, it becomes much simpler to
monitor customers' buying habits. This is especially true for digital coupons.
As was the case with newspapers' classified ads, newspapers are generally
licking their wounds as another
significant source of commercial revenue became lost to the internet. Yet there
is some good news for people who are addicted to clipping coupons: it appears
that the number of promotional offers and the diversity of those offers will
continue to expand.
Save Big on Groceries with These Top Coupon Websites and Apps
Are you looking for ways to reduce the cost of your weekly
shopping bill? These coupon websites and apps are quite cutting-edge methods to
save a lot of money on food and household items. You are familiar with the
tried-and-true methods for reducing the cost of food, such as planning weekly
menus, scouring circulars, clipping coupons, and building stockpiles of
discount items. And sure, we are aware that this is a lot simpler to say than
it is to actually execute. To our great relief, there are ingenious new tools
that take the strain—not to mention the scissors—out of the saving process.
Free money, in a single phrase!
Food On the Table App
Enter your family's cuisine preferences (no fish, passionate about
Italian) and your favorite retailers into the Food on the Table app. The
app will then use the GPS in your phone to search through the circulars for you
and make recipe recommendations based on the sales that are currently being
offered. Have a menu planned out already? Simply go to shortcuts.com, select
the recipe you want to make, and type in the items you don't have at home. This
will bring you a list of the retailers in your area that sell them at the
lowest price. It will even search for coupons and add them directly to your
loyalty card at the grocery shop if it finds any.
Grocery IQ
There are a lot of interesting list applications, but Grocery
IQ takes it to the next level by integrating coupons from coupons.com.
There are a lot of cool list apps. When you add something to your cart, you
will be notified if there are coupons that you can either print off or load
onto your loyalty card at the grocery store. When you create a shopping list or
scan bar codes inside of a store using the more recent PushPins app
(which is linked with more than 6,000 retailers), the app will instantly add
coupons to your loyalty card and propose weekly deals.
Safeway (Just for U)
Let coupons come to you. One of the chains that is now releasing
apps that provide customers with personalized digital coupons based on their shopping
patterns is Safeway (Just for U). For instance, if you use SCAN IT!, you will
be able to scan and bag your items as you shop. You should always link your
plastic loyalty card to the store's digital coupon center (these days, the
majority of retail chains have one on their online), so that you don't miss out
on simple opportunities to save money when you're checking out.
The Grocery Smarts Coupon Shopper Apps
The Grocery Smarts Coupon Shopper app simplifies the process of
saving money at the grocery store by combining store circulars (from retailers
like as Target, CVS, Rite-Aid, and Walgreens) with coupons that are currently
available to display the total amount you will save. It might provide you with
downloadable coupons or inform you of the dates for the advertisements in the
newspaper circulars. Use your store discount card in addition to it for a
triple play of savings. Are you often failing to remember the one you require?
With the CardStar app, you may centralize all of them on your mobile device.
Grocery Rewards or Loyalty Cards Option
You should look at "grocery rewards" credit card
possibilities on a comparison website like nerdwallet.com or cardbenefit.com if
you are the type of person who is able to pay off their credit card payment in
full each month. This will help you determine which one of these cards is best
for you (some offer 6 percent cash back). In addition, register your store
loyalty cards at the website for tuition savings known as upromise.com. This
will enable you to earn an effortless 1 to 3 percent back on groceries that can
be applied to your kid's college account. Additionally, you can download
coupons from the website to nab additional college dollars.
Notes
Balancing Everything. (2023). Coupon Statistics.
Retrieved from https://balancingeverything.com/coupon-statistics/
Gillen, M. (2020). The Best Grocery Coupon Websites and
Apps. Retrieved from Parenting:
https://www.parenting.com/food-recipes/coupon-websites-apps/
Real Wire. (2021, December 29). New Research Shows Strong
Influence of Digital Coupons. Retrieved from
https://retailwire.com/discussion/new-research-shows-strong-influence-of-digital-coupons/
The Economist. (2010, December 24). Retrieved from
https://www.economist.com/newsbook/2010/12/24/return-of-the-coupon-clippers
Valassis. (2021). Universal Digital Coupons. Retrieved
from https://valassis.com/wp-content/uploads/2022/02/Universal-Coupon-Infographic2.pdf
YCharts. (2023). US Inflation Rate. Retrieved from
https://ycharts.com/indicators/us_inflation_rate#:~:text=US%20Inflation%20Rate%20is%20at,long%20term%20average%20of%203.28%25.
So you’ve graduated from
college? Congratulations! Your hard work have brought you to this moment. You
are now one of us. But remember: your real life begins this today.
As you are aware by now,
a college degree is required for succeeding in life these days. So you now have
your degree? What’s the next step? This is actually the time you wake up to
your life. As a college graduate I’m sure you won’t like to sleep-walk through
your life or to live a lifestyle that is based on other people’s expectations.
Of course it is your right to throw your cap in the air or to stage an Instagram photo of you throwing
your cap in the air. However, never forget that life after graduations brings
more responsibilities. This is the time to start developing and putting your
financial plans into action. So, I’m going to share some things that will help
you to develop a financial plan for living a life of purpose and greatness,
free from financial headaches. Here’s how.
Get
a job fast!
If you haven’t done so
yet, this is the time to do it: get a job. If you couldn’t find your dream job fast enough, it is perfectly fine to take any
part-time job that would help you to pay the bills and get by, while searching
for your dream job. There’s both nobility and dignity in doing that. As a
matter of fact, it is much better than living in your parents basement until
you are 30 or 40, waiting for your dream job to drop into your lap.
You
will need to create a cash flow
Creating and managing a
cash flow is very important in your life. Creating a cash flows begins with a
job: your wages or salary will be your cash inflow. Next, you will need a
process for tracking what’s coming in and going out. Any method you use to
track the movement of cash in your work life is just fine, provided that it
provides you with a way to find the money to fund your various financial
priorities. Many banks offers apps that can help you with this exercise.1
Alternatively, you may use other resources
like Digit,2 Mint, or You Need A Budget.3 The
bottom line here is that, when you manage your cash flow properly, you can get
more out of life. Believe me, sometimes a lack of money can be a problem without
equal.
Review
your credit report
It is very important that
you form the habit of visiting AnnuaCreditReport.com periodically to make sure
it is in good shape. Remember that the law entitles you to check your credit
reports from each major credit reporting agencies for free once a year. If you
find any mistake, such as social security numbers that don’t belong to you or
accounts that are not yours, notify the credit reporting agency immediately. To
review your credit report free of charge, visit AnnualCreditReport.com or call
1-877-322-8228.4 Reviewing your credit report at least once a year
will help you not only to prevent misuse of your identity but is also an
important part of managing your personal finances: your credit score may affect
your job application, your mortgage rate, credit card approvals, and even your
apartment requests.
Get rid of your debt
Having too much debts
hanging on your neck is a difficult and stressful way to live. So your first
priority when you get a job should be to get out of debt fast. The truth is
that debts of any kind are not cool. So, paying them off is more
important than going on vacation. If you are really determined to get out of
debt then you should realize that things like going to movies every week,
eating out or getting the premium cable package are less important. Note that
avoiding these things while getting out of debt, though difficult to do, are
just temporary sacrifices. Once you are debt-free, you can create more room in
your budget for dinning out and movie dates.
Build a healthy emergency
fund
An emergency fund simply
means a savings account where you accumulate cash for the sole purpose helping
you to maintain a normal life despite the emergencies that life hands you. Never
forget that there will always be a rainy day. You may lose your job. Your car
may need an expensive repair. You may need a security deposit for an apartment
rental. If any of these things happens you will have some room to breathe and
hence will not panic if you have emergency fund locked away in a savings
account. Financial planners recommend having as much as eight month of living
expenses stashed away in a savings account.5 This way you will have
sufficient cash to pay for unexpected expenses, rather than relying on credit
cards and drowning yourself in debt.
References
1Schlesinger,
J. (2017, May 21). Congratulations Graduate! Now Start A Money Plan. Baltimore
Sun, p. 20.
3Ravenscraft,
E. (2016, March 13). Budgeting Software Showdown: Mint vs. You Need a Budget. Life
Hacker. Retrieved from
http://lifehacker.com/budgeting-software-showdown-mint-vs-you-need-a-budget-1764607246
5Hamm, T.
(2014, August 26). A Step-By-Step Guide to Building a Big, Healthy Emergency
Fund. The Simple Dollar. Retrieved from
http://www.thesimpledollar.com/a-step-by-step-guide-to-building-a-big-healthy-emergency-fund/
Now,
don’t get me wrong: the truth is that there’s no sure way to avoid an IRS
audit. However, there are some red flags that can shield you from unwanted
attention from the IRS.
I have seen a lot of
people freak out every April. The problem? Taxes! As a matter of fact, I knew a
lot of Americans who would rather have root canal surgery than an Internal
Revenue Service (IRS) audit. They are not entirely wrong. I mean, we hear the
stories all the time from relatives, neighbors, friends or friends of friends, and
even wealthy politicians and celebrities getting caught up with the tax man for
not reporting, inaccurate reporting or underreporting
their incomes on their tax returns. When things like this happens, the people
involved either pay stiff penalties to the IRS or are sent to jail over bad tax
reporting. And if the people affected this way are celebrities, politicians or
wealthy people, it can become a major news that instills fears over an IRS agent showing up on our own doorstep. Ideally,
that’s exactly how the IRS wants it: fear increases compliance. But, in spite
of that, the agency doesn’t really want to put people in jail for the simple
reason that they benefit more when taxpayers are out there working and bringing
in more revenue.
I still remember the day
I came back from work and saw a thick white envelope from the IRS in my
mailbox. At first I was too scared to open it. Jesus H. Christ! What have I
done this time? Am I being audited? Later on, I tied my courage to the post and
opened it. It wasn’t that bad: it was about a little money I made from winning
a second position in a national essay in 2014. I forgot to report this income
in my tax return and the letter stated that I owed taxes on that income plus
the penalty that was applied. Not a big deal: I made a payment arrangement with
IRS and paid it off. End of story.
But for some people, it
could be too bad. Even the legendary mob boss Alfonse Capone was sent to jail
for tax evasion.1 So it is not surprising that a lot of people get
heart palpations whenever they receive a letter from the IRS. One thing is for
certain: whatever your tax problems, don’t be scared. There will always be a safe resolution provided that you
are willing to work with IRS to meet their deadlines. It is important, though,
to understand why IRS may be interested in eyeballing your tax return.
4
Big IRS red flags that could lead to tax audit
Without putting it in so
many words, the only reason to worry about IRS audit is if you are fudging on
your taxes or if you are not paying your taxes. The IRS is short on personnel
and funding and, as a result, they audited only 0.86% of all individual returns
in 2014.2 In 2015, they
audited about 0.84% of returns while in 2016 IRS audited only 0.70% of all individual
tax returns.3 So, as you can see, the chances that your return will
be singled out for review is pretty low. While there’s no sure way to avoid an
IRS audit, the following red flags may attract them to you.
If
you make a lot of money
Generally speaking, the
overall individual audit rate is only about one in 143 tax returns. However,
your chances of attracting IRS examination of your tax returns increase
dramatically as your income goes up. According to IRS statistics for 2016, if
your income is $200,000 per year or higher, then your chances of being audited
by the IRS is 1.01%, or about one out of every 60 returns; and you have a roughly 1 in 5 chance of getting
audited if you earn $10 million or more(see table 1).4 Now, I’m not
trying to discourage you from making more money.
Table 1: Percentage of
Individual Returns Audited in 2016
Size of Adjusted
Gross Income
Returns Audited
No adjusted
gross income
3.25%
Under $25,000
0.80%
$25,000 -
$49,999
0.49%
$50,000 -
$74,999
0.41%
$75,000 -
$99,999
0.52%
$100,000 -
$199,999
0.62%
$200,000 -
$499,999
1.01%
$500,000 -
$999,999
2.06%
$1,000,000 -
$4,999,999
4.60%
$5,000,000 -
$9,999,999
10.46%
10,000,000 or
more
18.79%
Source:
Internal Revenue Service Data Book, 2016
Like everyone else, you
definitely want to be rich. But it is important to understand that you are more
likely to hear from IRS if more income shows up in your tax return.
Failure
to report all income on tax return
You are required by law
to report all the income you earned in a given year to the IRS on an annual tax
return. In any case, the IRS also receive copies of all of the 1099s and W-2s that
you receive so don’t think you can outsmart them. So you can imagine what would
happen if you did not report all required income in your return. Now, because
the IRS computers are very good at matching the numbers on the forms with the
income shown on your return, any mismatch will immediately light up a red flag.
And this will cause the IRS computers to spit out a bill.5 If, for some reason you receive a 1099 listing
incorrect income, or a 1099 that shows income that isn’t yours, contact the
issuer immediately and get them to file a correct form to the IRS. This way you
can avoid unnecessary headaches and penalties.
Are
your tax deductions too big?
You could be flirting
with IRS audit if the deductions on your return are disproportionately large
compared with an income. Here’s a better way of putting this: if you are
claiming out sized deductions it will raise red flags and the IRS may pull your
return for review. So be sure to have the proper documentation for your
deductions. If you do this, then you shouldn’t be afraid to claim them.
If
you are running a small business
Most small business
owners and self-employed individuals know that Schedule C is a treasure trove
of tax deductions. But what a lot of them don’t know is that Schedule C is also
a gold mine for the IRS agents. It is important to state here that IRS agents
are very smart people, and they know from experience that self-employed people
sometimes claim excessive deductions and don’t report all their incomes. The
IRS agents are like the ‘middle school principal’ that watches over both the higher-grossing sole proprietorship
and smaller ones.
Some businesses are
called cash-intensive businesses because they receive significant amount of
their incomes in cash. Good examples are taxis, restaurants, hair salons, car
washes, bars, and so on.6 If you own that type of business you will
receive special scrutiny from IRS especially if you report a substantial net
loss on Schedule C.
Each
to their own
Next time you get those
envelopes, don’t get scared. Just stay calm and remember there’s always a safe
resolution. And as a taxpayer you have your rights. Take a deep breath and know
that you don’t have to fear being bullied or confused by the IRS. Keep in mind
that you can get some help if you need it. For example, Taxpayer Advocate is an
independent organization within the IRS that have vowed to help taxpayers like
you resolve their tax problems.
Using
coupons is not just about saving money at Walmart, J.C. Penny, or at your local
grocery store. Having a coupon mindset goes much further than that since it
means living a lifestyle that is centered around saving on almost everything
that is purchased. In this day and age of continuous rising cost of living,
that do indeed counts for something.
The other day I went to
Weis, a grocery store in my neighborhood. At the checkout counter, the lady in front
of me had a cart filled to the brim with groceries. She was also holding a
bundle of coupons on her hand - it looked like she had a coupon for every item
in her cart. And I said to myself, “Oh my God! I’m going to spend the rest of
my life standing here today, waiting for this lady’s coupons and items to be
checked by the clerk.” But it wasn’t as bad as I thought. As I watch the
grocery clerk scan the lady’s grocery, I saw that the lady bought items worth
$345.76. Then she handed her coupons to the grocery clerk and, after she
scanned them, the lady’s bill came down to $188. My eyes nearly popped when I
saw this. Did this really happened, or was I dreaming? Well, I knew I wasn’t
dreaming when the lady handed the grocery clerk nine $20 bills and eight $1
bills. That really got my attention, and I said to myself, “Why was I born
handsome instead of rich?” Indeed, it
was that moment that I realized how powerful grocery coupons are.
Stooping to conquer
I will start with the
most basic question of all: is all that tedious coupon-clipping worth it? As I
found out from my experience with the ‘coupon lady’ the last time I was at
Weis, the answer is yes. I am convinced that it is a good thing to spend time
scouring for and sorting those 65-cent-off rectangles rather than spending
almost half of your paycheck at the grocery store. Why, even millionaires clip
coupons as part of their saving strategies. As a matter of fact, the idea that
many millionaires live frugal lifestyles and do clip coupons was the basis for
the book The Millionaire Next Door1
– a 1998 bestseller written by Thomas Stanley and William Danko. In that book,
the authors noted that people with high income, specifically the millionaires,
do cut coupons and do also stick to their shopping list so as to save money and
have more money to do things they enjoy. In a similar book, namely The Millionaire Mind,2 Thomas
Stanley narrated more surprising truth about millionaires: many of them actually
live frugal lifestyles. For example, a lot of millionaires choose to repurpose
their furniture rather than buy new, and have their cars fixed rather than
buying new ones. According to the book, the millionaires always look at the big
picture. For them, clipping coupons or living a frugal lifestyle means saving more
money to re-invest to create more wealth. This naturally explain why many of
them do meal planning and prepare shopping lists that match their available
coupons.3
First – and last –
pay attention
So, if rich people use
coupons, why then do so many low income families don’t use them? The reasons a
lot of them gave are really absurd: They are too embarrassed to use coupons
because they think using it will either define them as cheapskate, make them
look poor or cause cashiers to scoff, or simply because they are too busy. Hence,
in general, only a small percentage of shoppers (about 1 percent) redeem
coupons. As Ms. Montaldo, a writer for The
Balance, a personal finance publication, put it:
U.S.
Consumer Packaged Goods (CPG) marketers reportedly distributed coupons valued
at $470 billion for products used daily like food, beverages, clothing,
tobacco, and household items. The average coupon had a face value of $1.54.
Only $4.6 billion coupons were redeemed. Coupons valued at $465 billion went
unused.4
The fact still remains
that shoppers who use coupons religiously can save significant amount of money,
sometimes as much as $60 per week depending on the size of their shopping list
and their level of coupon involvement. This can add up to $3,120 a year. Does
this catches your attention? I hope it does.
Gains foretold
These days almost
everyone claims to be too busy. It is indeed true: a lot of people are all on
the run keeping up with the kids, education, jobs, maintaining their homes, you
name it. This also means that snagging an extra time to relax can sometimes be
a challenge. So, it is not surprising that the thought of adding coupon
clipping to their schedule seems impossible to some people. This, however, does
not mean that finding and using coupons cannot be streamlined or made easy.
What many people don’t know is that using coupons does not always involve
coupon clipping: they can save while shopping in their local grocery store by
simply handing a cashier their customer card and having any applicable coupons
automatically deducted from their grocery bill. But, to do this, they will need
to apply for the grocery’s customer or reward card first.
Using online resources
for printable coupons, such as coupons.com or SmartSource.com, are also super
convenient. Not only that, one can get good deals by searching for printable
coupons on the websites of most malls and outlet stores. The good news is that
websites with printable grocery coupons abound, and they are simple to search
and use. By doing a quick search on the internet, one can easily locate coupons
for national stores like Walmart, Walgreens, Macy’s, and so on. Some stores
even go beyond that: shoppers can find information about discounts that credit
cards are giving by simply shopping in them. Online shoppers can now rejoice
because there are now thousands of coupon codes listed daily for extra savings
so long as they buy things online.
Here’s my take: you can
save a lot of money by using coupons. Using coupons is not just about saving
money at Walmart, J.C. Penny, or at your local grocery store. Having a coupon
mindset goes much further than that since it means living a lifestyle that is
centered around saving on almost everything that is purchased. In this day and
age of continuous rising cost of living, that do indeed counts for something.
References
1Stanley T.J., Danko W.D. (2010). The Millionaire Next Door: The Surprising
Secrets of America’s Wealthy. Lanham, MD: Taylor Trade Publishing.
2Stanley T.J. (2001). The Millionaire Mind. Kansas City, MO:
Andrews McMeel Publishing.
