Financial Planning Workshop: Session 5

Welcome to the fifth and final session in our Financial Planning Workshop. Today we will discuss another topic that should be considered when planning for your future. This workshop will not develop a comprehensive financial plan for you, but instead is intended to give you some ideas and tips to help in your planning.

To reiterate, financial planning is the process of organizing your financial attributes (assets, liabilities, earnings, expenses, taxes, savings, investments) to achieve the financial results you want in life (nice house, college savings, early retirement, vacation home).  The process takes a lot of thought and changes over time.


Easy Ways to Save or Earn Thousands of Dollars a Year

Use a Reward Credit Card

If you use a credit card for purchases, make sure you use one that pays you either cash or airline miles.  For example, the Capital One Venture card earns two travel miles for every dollar charged.  The Citi Double Cash card pays you 1% on every dollar you charge and another 1% when you pay the balance.

Earn Money on Your Emergency Fund

Using an online FDIC insured bank, you can earn up to 1.2% on your savings account.  Most of the time these online banks are tied to your checking account so you can transfer funds as needed between the accounts.  Sychrony Bank, GS Bank (Goldman Sachs), and Barclays all pay 1.2%.  Interest rates are finally increasing, so these bank should pay more in the future.

Use Stock or a Mutual Fund to Make Charitable Contributions

Instead of giving cash to a charity, you can use appreciated stock or a mutual fund and avoid paying capital gains tax on any appreciation.  (This strategy only works if you have held the stock or mutual fund for more than one year.)  For example, if you paid $20,000 for a stock three years ago and it is now worth $40,000, you could give the stock to a charity and get a deduction for the full $40,000 value without paying tax on the gain.  However, if you sold the stock first, you would have to pay up to $4,760 of tax (at 23.8%) and only have $35,240 left to give to the charity.

Maximize Your Deductions

You are allowed to reduce your taxable income by the greater of a standard deduction ($12,700 in 2017 if you are married) or an itemized deduction (the sum of mortgage interest, property and sales taxes, and charitable contributions).  Many people do not have enough itemized expenses in any given year to exceed the standard deduction.  In most cases, by timing your deductions right, you can exceed the standard deduction and save taxes every other year.  Let’s say you have $8,000 of mortgage interest, $2,000 of property taxes and $2,700 of charitable deductions.  The total of those expenses, $12,700, is equal to the standard deduction, and in effect, you receive no deduction for any of those items.  However, if you paid two years of taxes and charitable gifts in one tax year, you would have $17,400 in itemized deductions and get to reduce your taxable income by $4,700 more than the standard deduction.  If you are in the 25% tax bracket, you would save $1,175 in taxes every two years