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Financial Literacy Month: What is Your Financial IQ?

by Claude Tichee III, CPA | Apr 13, 2017   ()

This short quiz may help you determine if you’re a money maven – or if you need to brush up on your savings skills.

  1. True or false: I’m not saving for retirement now because I plan to start in a few years. 
  2. True or false: My tax refund is large every year, and spending it on a shopping spree is my favorite annual tradition. 
  3. True or false: I am not planning to buy a house or a car soon, so I don’t need to worry about my credit score.

If you answered “false” to all of these statements, congratulations! You are a savvy saver. If you answered “true,” the tips below may help fatten your wallet – both in the future and even as soon as your next paycheck.

If you’re not saving for retirement now, starting retirement savings soon will be the best way to grow an account. The ability to compound interest – even on smaller dollar amounts – will be of far more benefit than trying to catch up later. Putting a little bit in a retirement account now to take advantage of years of additional compound interest is the best way to grow your savings.

If your employer offers an IRA or 401k match, you can bank even bigger bucks. For example, if your employer offers a 1 percent match on a 2 percent contribution, you’ve just made a 50 percent return on your investment. You’re not likely to find better guaranteed results. In this case, your contributions should meet the maximum match requirements offered by your employer, but the more you contribute to a retirement account, the better off your finances will be in to the future.

It always feels good to get a check in the mail, but a large tax refund is not a gift from Uncle Sam. That money was yours to begin with and could have been in your pocket much sooner than the arrival of your refund check.

A large refund may mean you are withholding too much from your paycheck. Consider working with your employer to adjust your withholdings. This way you get the benefit of a bigger paycheck throughout the entire year, instead of providing an interest-free loan to the IRS.

In the meantime, instead of spending your large tax refund on a new iPad or that television or you’ve been eying, you should think about investing in your future. If you don’t have an IRA to save for retirement, your bank can help you open one. If you do have an IRA, be sure you’re making the maximum contribution before putting that cash toward new golf clubs for the spring season.

Of course, if you are surprised to find that you owe more than you expected to, or if you still owe taxes from last year, you should work to pay your bill as soon as possible. Uncle Sam is not a happy lender. Consider talking to a CPA to see if there are some deductions you missed on this and previous years’ returns. If there are some opportunities to lower your bill, your accountant can help you amend your returns.

Even if you’re not planning a big purchase in the next few months, it’s important to work on keeping your credit score high. If your refrigerator dies and you need to take out a loan to replace it, a higher credit score makes you more likely to be able to get a loan – and may even cool down your interest payments. Then – when it is time to get a loan for a house or a new car –  you won’t have to worry that you’ll be turned down.

Credit reporting bureaus are far from perfect. Checking out your credit reports on a regular basis can help you catch mistakes – as well as spot potential criminal activity, such as identity theft.

Monitoring your credit score is also the best way to ensure any phishing scam is caught early. Being mindful of your personal data allows you to stay ahead of the bad people who are trying to get ahold of your tax refund or your bank account.

Now, take another look at the quiz above. By saving for retirement early, adjusting your tax withholdings and monitoring your credit score you can raise your financial IQ.

Claude Titche III is a CPA and a partner with Beene Garter LLP. He has more than 25 years of experience serving clients in a wide variety of industries including wholesale distribution, manufacturing, professional service firms, real estate, healthcare, litigation support, restaurants and agribusiness. Contact him at ctitche@beenegarter.com.

 

 

 

 

 

 

 

Source: MICPA
Source: MICPA

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