Here at Lasso, we love featuring financial advisors who are really helping people make sense of their finances, and this week’s article is no different. This piece was co-authored along with Michael Dunne of Cereus Financial Advisors.
Looking for a little extra cash? Considering selling a kidney on the black market?
We get it – you’ve cut down on your spending and remained faithful to your budget, but you still need a little more wiggle room for spending money.
There are actually several strategies you can use to keep more cash in your pocket (and all of your organs in your body). And no, you don’t have to give up your avocado toast or that grande triple-frappe no-foam macchiato you basically live for.
In today’s article, we’ve rounded up six small changes that can make a big impact on your budget, without requiring any major lifestyle alterations.
1. Refinance Your Student Loan Payments
If you’re one of the 14.8 million millennials saddled with student loan debt, you might be waiting around and praying for that sweet, sweet student loan forgiveness to come through. Unfortunately, with no official legislative proposal on the books yet, it looks like that strategy might take a while to come to fruition.
But what’s the alternative?
You may be able to refinance your student loan payments. Your best bet is to work with a financial planner or student loan advisor to see if you can save by switching repayment plans. However, keep in mind that if the Biden Administration extends the moratorium on student loan payments, you might not need to refinance right away.
Another tip? If you work for a government agency or non-profit organization, a planner or advisor may be able to help you apply for Public Service Loan Forgiveness (PSLF), which waives your remaining balance after 120 consecutive monthly payments.
2. Raise Your Insurance Deductibles (but only if you have an emergency fund!)
If you’ve already set aside an emergency fund that can cover three to six months of expenses, then you may be in a position where you could raise your insurance deductibles.
Why? Insurance exists to act as a cushion against emergencies, but guess what else does that same thing: your emergency fund!
Don’t get us wrong: We are not saying you should get rid of insurance. But with your emergency fund protecting you from smaller calamities, you could increase your deductibles while still protecting yourself from the huge expenses of major emergencies. Yes, when an accident occurs, you’ll have to pay more out of pocket, but your monthly expenses will drop.
To talk about options for raising your deductibles, you can reach out directly to your auto, homeowners and health insurance providers.
3. Get Your Tax Discounts
That’s right – you could qualify for major tax discounts just by saving for retirement!
Contributions to a pre-tax 401(k) account, a deductible IRA, or other pre-tax employee benefits can lower the amount of your taxable income. Overall, that means you’d be paying less in taxes than if you had put that money into a regular savings account.
In 2021, you could contribute up to $19,500 to your 401(k), and in 2022 that number has gone up to $20,500. If you’re 50 or older, you can contribute an additional $6,500 in “catch-up” contributions. The best part? Every dollar you contribute is deductible for tax purposes.
If you’re not planning on touching that money for years anyway, why not take advantage of the tax break and save yourself a little extra dough?
4. Beware of Gains on Your Crypto
You may have heard those horror stories of individuals using their Bitcoin just before it took off – but another red flag you should take note of in the crypto world is taxes.
If you have big gains on your crypto holdings, it might be tempting to spend some of it on a bougie vacay or a nice new car. But using cryptocurrency is the same as selling it, so those purchases will incur taxes on the amount of the gains, just as if you had sold it.
This is true even if you simply exchange one crypto for another, like trading some Bitcoin for some Ethereum. Like stocks, mutual funds or ETFs, crypto transactions count as taxable events.
5. Make Sure to Deduct 529 Contributions
While we’re on the subject of tax deductions, consider this: If you are saving for your child or dependent’s college education it may be worth your while to check into a 529 plan.
529 plans are investment accounts to help people save for college that offer additional tax deductions on your state income tax return. Currently, 30 states offer this tax-saving deduction for accounts funded within your home state, and seven of those states offer deductions for accounts opened in any state.
6. Take Advantage of Low Stock Prices and Sell Poor-Performing Stocks
The lower stock prices of 2022 aren’t all bad. In investing, there is a savings strategy called tax loss harvesting, when you sell some losing investments to generate tax savings.
Settling for a loss may seem counterintuitive, but you can use these losses to offset any capital gains you may have later in the year, or to deduct against your income (up to $3,000) on your tax return.
In the meantime, to remain invested in a diversified portfolio, you can reinvest the proceeds in other similar stocks, funds or ETFs. Just be mindful of the IRS’s wash sale rules – don’t buy the same stocks, funds or ETFs until more than 30 days have passed since you sold them. If you do, the losses will be disallowed on your tax return, and your tax bill could actually go up.
Bonus Tip: Get Creative!
Once you’ve tapped into these six saving strategies, you may feel like you’ve finally done it all – but there are always more ways to save. A few of our favorite tips and tricks include:
- Call your service providers and politely threaten to switch companies at least once per year and see if they offer a monthly discount if you stay. Rinse and repeat as necessary.
- Cancel subscription services you no longer use (who’s actually watching Paramount+, anyway?)
- Download restaurant apps for free food. Likewise, habitually wear an “It’s my birthday!” t-shirt to increase your free desserts to non-free desserts ratio.
Grow Your Savings with Lasso
Michael Dunne, CFP®, is a financial advisor at Cereus Financial Advisors. When he’s not traveling, making wine or long-distance running, Mike enjoys sharing his over 30 years of expertise to help people plan for their financial future.
You can find Mike and connect with him in Lasso!