Filling the Holes in Your Budget

2006-07-16

We’ve all experienced it. You write out your budget. Everything looks good and you have all your numbers in order. Then when it comes time to pay your bills, it hits you. There are holes in your budget. There are two common holes in personal budgets. The first is withholding too much federal income tax, which results in you loaning money to the federal government interest free. The second is maintaining very low deductibles on auto and home insurance, resulting in higher than necessary premiums.

Federal Tax Withholdings
Over the last few years, the federal government has implemented many tax cuts. But, many workers have not adjusted their withholdings resulting in an average $2000 refund per household in 2002. Let’s realistically think about what a tax refund is. This is merely a refund of overpaid tax dollars. In essence by not adjusting your federal tax withholdings you are loaning the federal government your money interest free for 15 months. I don’t know about you, but I sure wish I could get a 15 month interest free loan.

Yes, you should pay your fair share of taxes, but overpaying is not the answer. Let’s examine the $2000 average refund. If you were to adjust your withholdings through your employer to the right amount, it would equate to approximately a $166 pay raise each month.

Insurance Deductibles
Insurance statistics show that if you were to raise your deductible from the industry standard of $250 to a modest $500, you could lower your rates by as much as 30%. This adjustment can be made on both your auto and home insurance policies. Also, depending on your personal situation, you could consider an even higher deductible for even greater savings. Also, you should examine the policies you are carrying and “trim the fat”. By this we mean, cut out all the little extras that many people never use, like Roadside service, etc. Also, if you want Roadside Service, be sure to check your cell phone bill or if you are an OnStar subscriber to see if you are paying for this type service. Many cell phone providers add this service in free for the first month, and then charge you for it. Many don’t even realize it. So, in essence, you could be paying for the same service three times.

Wants verses Needs
Know the difference between your wants and your needs. Advertisers have one job when they represent a product. That job is to convince you that their product is a need rather than a want. They want to create an image that their product is a must have. Many equate financial success by the brands they own, whether they need it or not. We equate social status with what other people own, thus causing us to rush out and buy things we realistically can’t afford on credit. This never ending cycle of “Keeping up with the Jones” has sent a many a family into financial ruin and eventually divorce. Don’t get caught up in this cycle, and if you already are, jump off fast! It may mean selling the BMW and buying a Camry but if it allows you to sleep soundly at night, it’s all worth it.

Related Articles:
» Budgeting: Creating a Personal Budget for you or your family
» Planning a Family Budget That Works
» Financial Counseling Before Marriage

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