The current economic condition of the nation has tightened the purse threads and has put people on the path of frugal living. Hardening credit conditions and increasing interest rates have driven people to scrutinize their personal budget plans and reorganize their expenses to suit their income a little more efficiently. Although you may think that you have done the best job you can as far as preparing your personal budget plan is concerned, there are still loopholes and pitfalls with every plan which subtly unsettles all your money saving tactics. Most people are not aware of these financial sinkholes till they have spent a substantial sum of money unknowingly. Here is a list of such loopholes that you need to cover in order to fine tune your budget.
• Decrease federal income tax withholdings – Maintaining a large federal income tax withholding means that you are looking for a fat tax rebate check. The idea might sound good on paper but in reality you are just giving away an interest free loan to the IRS. It doesn’t really make much financial sense. Pay your taxes proportionately and readjust the amount that is directly withheld from your paycheck. You should consult the HR department of your employer to make sure the filings and adjustments are performed correctly.
• Readjust your auto and home insurance deductible – The moment you purchase an insurance policy and skip over the finer details, certain items like the deductible remains set at the default rate. The deductible is the amount that you will have to pay out of your own pocket once you make a claim and the difference between the balance and the total amount is paid by your insurance company. The lower the deductible, the more you will have to pay towards your monthly insurance premium. Set your deductible high and you will save money in the long run.
• Avoid unnecessary transaction charges – Pay your own bills by yourself. Take the time to sit down, go through the bills and draw a check for each creditor instead of opting for electronic clearance or ACH. Your creditors will charge you extra for this little perk and at the end of the month you will have paid somewhere around $100 just on bank charges. Moreover, you will also rack up transaction charges for using an ATM to withdraw cash. The usual charge is around $1 to $3 per transaction. The best way to avoid this is by picking up sufficiently large chunks of money when you make your weekly visit to the bank. You can also write checks for an amount greater than your grocery and miscellaneous bills and have the balance returned to you at the checkout in cash.
• Differentiate and organize your ‘needs’ and your ‘wants’ – Most people fail to recognize and differentiate between essentials and luxuries. Modern day consumerism is also partly to blame for the current condition wherein people spend more on cable TV than on food. Moreover, brand awareness has driven people to blindly believe in labels without even considering the fact that unbranded cheaper goods can be just as good as their branded and more expensive counterparts. The idea is to base you spending on what you need rather than on what you buy.
Locating and rotting out these financial ‘black holes’ from your personal budget will not only better your cash flow but also contribute towards your savings. The best idea is to review your finances from time to time and keep an eye open for expenditures which look heftier than they should be.