The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: How much Refund too much?||Date: 2/10/2006 10:00 PM|
|Author: catscanner||Number: 83809 of 122112|
I also won't flame, since it works for you.
However, I will point out 2 items:
You say you use part of the refund to fund an IRA. So you will make your 2006 contribution "sometime" after you receive your refund from 2005 -- probably sometime in March?. You can save a month minimum by getting the money back during 2005 and being able to deposit your contribution on 1/1/06.
But -- you have a hard time saving by your own admission. It is good to know thyself, but a little prior planning prevents underperformance...
Get an automation transfer going for $333.33 every month from your checking account over to your IRA. Better yet, transfer another $500 a month over to ING savings, (or to a mutual fund account, or DRIP accounts, etc.) David Bach's Automatic Millionaire is a thought provoking book.
I'm not sure if I was clear about the savings...I have my ROTH IRA's funded, for both myself and my wife, on a monthly basis, thereby using $ cost averaging for lower my cost basis. I also have @ 75% - 80% of my annual amounts for the accounts funded by year's end. I use the "refund" to top them off.
Additionally I fully fund my 401k each year. The easiest way for my (and I would recommend this to all) is to take your base salary (I'm paid by the hour), multiple by 40 hours a week then by 52 weeks then divide the annual limit into that number and multiply by 100 - giving me the %age that I need to hit the fully funded amount - assuming I don;t work any OT. OT just kicks the funds in earlier and I end up with a small raise in my paychecks for the last month or so of the year. Kinda like a xmas club again. To start, I tell everybody I work with that doesn't do any savings is to start off with 2 or 3%, then ,each year as you get a raise, take half the raise and put it away to the 401k and the otehr half is for you. Within a few years you are close to your max and you don't miss it.
I do auto transfers for the funds needed to cover all of my property taxes (I have 2 rentals and 1 home) into ING accounts. I get the interest instead of my mortgage company. Same for fire and flood insurance. If I really wanted to squeeze it I could do that with auto, life, electrical (I'm on a balanced payment plan - another great idea - every 3 months it's adjusted), etc.
There are tons of ways to game the system, but for me, the tax refund is a forced savings. I don't miss it (other may and need the cash now), I don't miss the 401k, IRA etc funds. But, by gradually increasing the savings amounts, doing it on a regular and somewhat forced way, I live within my "means".
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