In the latest “Ask an Expert” virtual session for the Dress for Success community, tax law expert and Savvy Ladies Helpline Volunteer Matthew E. Foreman shed light on some of the most commonly asked personal finance questions. Missed the streaming? Read all the takeaways from the Q&A with additional input from Helpline Volunteers Margery Schiller and Robert Sharer below!
I have so many bills, but I want to start saving. Where do I begin?
As the old saying goes, “pay yourself first”. That means set aside some savings before you spend anything. Aiming to save 10% of your income is a good rule of thumb.
If your employer has a 401K, start contributing to it. In many cases, employers will match it. Even if you don’t contribute to your employer’s 401(k), or you’re an independent contractor, you still have until 4/15 of the next year to make a contribution to an IRA, and it may be tax deductible.
Generally, focus on tax deductible or tax deferred options.
Should I invest my savings or keep them as cash?
It’s important to first create an emergency fund. Make sure you set aside enough money that’s sufficiently liquid, meaning you can easily access it when needed, that would give you a couple of months of runway in case of an emergency. The rest can be invested.
What is the best approach to start paying off debt?
If you have significant debt, develop a plan to pay it off. Focus on the highest interest debt first. For example, credit cards are usually high interest (don’t run up credit card debt–it’s invariably very expensive!), while student loans have comparatively low interest rates.
Consider debt repayment a priority. The fewer financial burdens on your paycheck the easier it is to make ends meet and build a lifestyle.
If your debts plus basic living expenses for housing, utilities and food make your cash flow negative, it is time to seek professional help. Go to www.nfcc.org to seek help managing your debts including renegotiating the sums owed. You can also contact the Savvy Ladies Free Financial Helpline to be matched with a financial expert.
What to do if you can’t pay taxes?
If you can’t pay your taxes in full when the return is due, file on time and the IRS (or any state) will send you a bill in a few months. You can ALWAYS enter into a payment plan.
As a general rule, pay state taxes first, which usually have a higher interest rate than federal ones. All states and the IRS offer payment plans for a low cost, or for free.
What are best tax practices for the self-employed?
If you work for a company and get a W-2 form, taxes are automatically withheld. However, if you work for yourself or are an independent contractor, you get a 1099 form and taxes are not withheld. That often leads to problems around tax filing deadlines due to lack of planning.
If you are self-employed or your job does not withhold taxes, make sure you set money aside to pay taxes. In order to determine how much to set aside, take the same percent of taxes you paid last year and make monthly payments. Remember, if you’re an independent contractor, some expenses are deductible.
How do I handle unemployment benefits when filing taxes?
Individuals receiving government benefits receive a 1099-G form. Above a certain threshold, income will be taxable, so unfortunately it’s still important to set money aside for taxes when receiving unemployment. As a general rule, 20% is a reasonable amount to set aside for these purposes.
What is the best way to start setting up a budget?
Cash flow management is a key to controlling your finances. Develop a realistic savings plan based on your goals (retirement, house purchase, education etc.) and do your best to stick to it.
For starting up your budget, first take a look at your income for the past few months. Make categories of things you need (food, transportation, etc) and prioritize them. Set amounts for each expense category, and also make sure you leave room for saving. Every two months, reevaluate your budget and adjust.
While a monthly budget is the accepted standard for planning, you may manage better with a payday chart to plan for the use of every paycheck and income source during the calendar year.
Other ideas to help manage your cash flow include using budgeting apps like You Need a Budget, setting up an ASP (auto-saving plan), or even putting money aside in physical envelopes.
How do you begin planning to start your own small business?
It’s best to use a lawyer to register your business. A lot of business and law schools, local governments and chambers of commerce will help people register their small businesses, in many cases pro bono. Take into account that documents may be costly, so make sure to ask about registration fees beforehand.
Top Takeaways
- Don’t run up credit card debt -it’s invariably very expensive
- If you have significant debt develop a plan to pay it off
- Develop a realistic savings plan based on your goals (retirement, house purchase, education etc.) and do your best to stick to it
- Consider debt repayment a priority. The fewer financial burdens on your paycheck the easier it is to make ends meet and build a lifestyle.
- If your debts plus basic living expenses for housing, utilities and food make your cashflow negative, it is time to seek professional help. Go to www.nfcc.org to seek help managing your debts including renegotiating the sums owed.
- Cash flow management is a key to controlling your finances. While a monthly budget is the accepted standard for planning, you may manage better with a payday chart to plan for the use of every paycheck and income source during the calendar year.
- If you are self-employed or your job does not withhold taxes, take the same percent of taxes you paid last year and make monthly payments.
- If you can’t pay your taxes in full when the return is due, file on time and the IRS (or any state) will send you a bill in a few months. You can ALWAYS enter into a payment plan.
- Even if you don’t contribute to your employer’s 401(k), you still have until 4/15 of the next year to make a contribution to an IRA, and it may be tax deductible.
Have more financial questions? Submit them to the Savvy Ladies Free Financial Helpline today and get matched with one of our financial expert volunteers!
