Steve Frey
Okay, so you are going to get a tax cut, and it is going to show up first in the amount of money that will not be withheld from your paycheck for federal taxes beginning sometime in February.
What are you going to do with it?
Will you get a new grill for your summer barbecues? Buy a kayak for spring adventures on the New River? Take an extra trip to Dollywood? Pick out a new recliner for the man cave?
There are so many great possibilities, but maybe we should all think outside the box. I’ll get back to that in a minute.
Here is a little information put together by Yahoo Finance about what you might be getting from that tax cut based on information from the IRS:
If you make $25,000 a year, you’re about to get an extra 24 dollars a month. If you make $40,000, you’ll get roughly $62 more a month; $80,000 a year would receive $162 a month. A $100,000 a year salary would get $228 a month.
Finally, if you’re lucky enough to make $1 million a year, you’re about to get an extra $2,700 a month. Let’s stop there, so we don’t get depressed by the amount multi-millionaires will get back!
The median income in Radford according to Sterling’s data is $30,284, and Data USA says it’s $29,912, so we’ll use $50 a month as a rough average, or $600 per year for the median Radfordite’s return.
Now, considering our extremely cold winter, a snarky person might say that quite a bit of that return is already spoken for with home heating costs, but since I’m a pretty positive kind of guy, I won’t bring that up.
By the way, in case you have been hibernating in the Dixie Caverns this winter, this tax cut is going to put an additional $1.5 trillion dollar hole in the national deficit, and the majority of the money will go back to the extremely wealthy and corporations.
Proponents of this cut believe that money will “trickle down” to the middle and lower income citizens in the way of new jobs and additional tax base, although this has not been the case with similar tax cuts in the past.
One concern for the average person in Radford should be how this ballooning deficit will affect the federal budget going forward. House Speaker Paul Ryan (WI) (R) and Senate Majority Leader Mitch McConnell (KY) (R) have already stated that they will now begin looking at programs like Social Security, Medicare and Medicaid for budget cuts, since these are a large part of the budget.
Hmmm—Give the extremely wealthy and corporations a big tax cut and then talk about cutting programs a lot of middle and lower class people, especially in Radford, depend on. It seems counterintuitive.
What will our Representative Morgan Griffith’s (R) approach be to possible cuts to these programs? What about Senators Tim Kaine (D) and Mark Warner (D)?
Stayed tuned!
Okay, back to that $50 per month you’ll be getting in your paycheck. Are you going to finally buy that deer stand or the automatic car starter?
One suggestion that often comes up with financial planners is to invest it in yourself and your family’s future.
Dave Ramsey, who is a well-known financial guru, has a “baby steps” to financial freedom program. I’ll let you explore them in detail yourself, since you can find information about this easily online, and he actually has a course and books to read if you’re interested, and I hope you are.
Again, I’m not a financial expert, but these seem like common sense ideas that come up quite often in most financial improvement programs.
First, if you don’t have one, building up an emergency fund seems essential. Remember that brake job you paid off with the credit card? How about the time the heat pump died? What about that tooth that had to be pulled.
Having some money for an emergency, Ramsey says to start out with saving $1000, just makes sense. Plus, you won’t have to go ask your Granny Beulah for the cash!
Next, paying off all credit card debt sounds good, too. Some people pay 21 percent or more on their credit card debt each month and paying that off is like getting a 21 percent return on an investment (Well, sort of.) You pay off the credit card with the least debt, feel the glow of victory, and then move on to the next biggest debt.
The next step, according to Ramsey, is fully funding that emergency fund with about three months or more of expenses, which would help you to be prepared in case there is a huge downturn in the economy and jobs are cut. Remember 2008?
Investing for retirement is next, and it’s really important for your future happiness. Do you realize that 33 percent of Americans have saved nothing for retirement? In fact, 56 percent have saved less than $10,000?
In these days where many companies have eliminated pensions and expect you to build your own retirement through a 401K, investing for your future is critical.
Here is another amazing fact to share with your YOLO children or grandchildren: If you start saving $250 per month when you’re 25, and you get an eight percent return (which has been a typical average for the stock market.), you will have one million dollars at age 67, when you start taking social security. Not a bad little nest egg.
Of course, saving 15 percent of your income for retirement, as most planners suggest, will get you there faster as your yearly wages go up, but if you don’t start somewhere you’ll probably end up never being able to afford to comfortably retire.
Fund that 401K, a Roth IRA, and, possibly, a 403B. Just do it ASAP!
After that, save in a brokerage account. Sock those dollars away and let compounding do the work for you over time.
Those are the first and biggest steps most advisors suggest, but think about it, do some research, get involved with a financial advisor, and take a look at materials by responsible financial wizards.
Now is the time to start. Don’t wait. The sooner you get started, the easier it is to save and the sooner you will have the money for financial freedom and maybe even retirement.
Pretend you didn’t get that extra withholding money, and, instead, work on doing something with it that will really help with both your present financial situation and your future. Pay yourself first!
Then, when you get your next raise, do the same thing with as much as you can afford.
No, you might not be running around the house shouting to your wife, “who wants to be a millionaire?” with your tax cut windfall anytime soon (,y wife would just look at me and say, “yeah, yeah, take out the trash.”), but you might just be able to climb out of debt today and afford that retirement in the future.
Why not use this “found money” tax cut to kick start your own financial plan? Transform that mindset of more disposable income into a solid economic success strategy.
It starts in February, so think of it as a long-term Valentine’s gift you give yourself and your family.
The best part—it’s the gift that keeps on giving!
Steve Frey isa Radford resident, writer and CEO of Ascendant Educational Services.
