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4: Make Your Plan

rain falling on growing money

Make Your Money Work for You

With the help of a financial advisor, you can reap the benefits and tax advantages of making your money work for you. Even though you may have small savings, each time your money grows you will have more to work with. If you don’t think you can afford an advisor, research free and low-cost counseling services through your local government, library or community nonprofit organizations. Just make sure you know what you will be charged and what services the counselor or advisor will provide.

Contribute to Retirement Plans

For a short-term strategy to increase your retirement savings rate, find out what you can do to put money in a tax-deferred retirement plan. Consider:

  • Max Out Matching Contributions
    If your employer matches contributions to a 401(k) or other retirement benefit, don’t say no to free money. Planting money for growth today will be what makes you financially secure tomorrow. Some employers match a portion of your contributions to 401(k), 403(b) or similar investments up to a certain level. Try to contribute up to the maximum that the employer will match because this essentially is free money. For example, if your employer will match up to 6 percent of your pay, then you should plan to contribute at least 6 percent to get the full benefit of the matching contribution.

Does your employer offer matching contributions to a 401(k)? Find out when you can sign up for the account.

Consider Investments

Investing is one method that puts your money to work for you, but market fluctuations and poor performances can baffle even the most qualified advisors. If you want to consider investing as a way to boost your retirement savings, consider working with a financial advisor who can help keep your investments at a risk level appropriate for you.

As a mid-term activity, consider what you know about investing and your risk tolerance. That way, when you meet with a financial advisor, you will be more familiar with terms and your level of comfort with this topic.

risk and safety directional sign

Determine Your Risk Tolerance

An important part of planning your investment strategy is understanding how much risk you’re willing to take and which types of risk most worry you. Your risk tolerance is the degree of uncertainty you are willing to take on to achieve potentially greater rewards.

Use this quiz from Rutgers Cooperative Extension to help you determine your risk comfort level.

Take Steps to Reduce Your Taxes

As the saying goes, two things are certain in this life: death and taxes. But, with planning, you can minimize your tax liability and keep money for yourself.

When you file your taxes or have someone prepare them for you, are you sure you’re getting all the tax advantages, credits and deductions you should? A long-term strategy is organizing so that you can find all your tax documentation when it’s time to file taxes next year.

Find and devise a method for keeping records on the following:

  1. Medical and dental expenses
  2. Work, education or moving-related expenses
  3. Charitable contributions
  4. Income or property tax payments
  5. Retirement contributions
  6. Child care expenses

Additionally, consider these questions:

  • Do you deduct items like qualifying contributions to retirement plans, one-half of self-employment taxes, alimony payments, contributions to health savings or dependent care accounts, qualified moving expenses, educational tuition and fees, etc. to reduce your adjusted gross income (AGI)?
  • Have you filled out your W-4 form to put all the money you possibly can into your pocket?
  • Are you familiar with the tax deductions and tax credits you can take?
  • Do you work with a financial or tax planner to ensure you are doing the most you can to reduce your taxes and bolster your savings?

Did You Know? There are free and low-cost tax preparation services available to many Americans who make less than a certain amount of income. Before you pay someone to do your taxes, check out these resources in your area.

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