We are now in the last few days of 2016. Here are five Frugal and Wise actions you should take before the year’s end:
- Stock up on holiday merchandise for next year. Take advantage of the post-Christmas deep discounts on holiday decorations, lighting, greeting cards and wrapping paper. Do not pay full price for the same items next November or December. (But please exercise some restraint in your post-holiday purchases.)
- Pick up your 2017 calendars at the dollar store. OK, the dollar store calendars are not as nice as the on ones sold at book stores or Staples for upwards of $8.00. But are the calendars from Staples 8 – 15 times better???
- Make last minute charitable donations – if you itemize deductions on your federal tax return, additional donations can reduce your 2016 tax bill (or increase your refund). Typically, those with middle class incomes are in a 25% tax bracket. That means that every $100 donated to charity could reduce your federal income taxes by $25. To qualify as a deduction for 2016, mailed donations must be postmarked no later than December 31st. Donation by credit card or electronic fund transfer must be initiated by the 31st.
- Gather up unwanted clothing and household items to donate. This week could be a great opportunity to reduce household clutter and get a tax break to boot! All that stuff no longer being used can be carted off to the Salvation Army, Goodwill, Purple Heart or similar organizations. Be sure to get a receipt for your donation. As a rule, your donation is valued by what it would cost to purchase similar items in a thrift store (Thrift Store Value). Donating $100 worth of clothing and household goods (not all that difficult to come up with) could reduce your tax bill by, say, $25.
- Bump up your retirement plan contribution by a percent or two – at a minimum, you should be contributing enough to your 401k or 403b to get the full match from your employer; failure to do so means losing out on a huge sum of money over a lifetime. Every year, try to ratchet up your contribution just a bit more: 1 or 2 percent each year? Such a small reduction in take-home pay likely will not be missed* but could significantly accelerate your retirement savings. See my posting You can’t spend what you ain’t got: Why You Need to Automate Your Savings.
*Example: If your annual salary is $60,000, one percent is $600 or only $50 per month. If your contribution is pretax and you are in a 25% tax bracket, your take-home pay is only reduced by $37.50 per month. Over a 30 year period, assuming a 7% annual return, these extra 1% contributions would accumulate about $56,000 in additional savings!
Wishing you a Happy and Prosperous New Year! Cheers, Paul