We all have dreams and goals – it’s part of life. Without them, you have nothing to strive for, no impetus to improve your situation. However, it’s vital that you consider personal taxes when planning for your future. For most people, a secure, happy future is one where they don’t have to worry about how they’ll keep the lights on or how they’ll make their next car payment. Financial security can mean paying higher taxes, though. The right planning and strategizing can help alleviate your potential future tax burden while ensuring that you have a reliable nest egg to support your quality of life.
Investing is a time-honored way of reducing your current tax liability while planning for the future. You can (and should) be putting your money into retirement accounts set up to use pre-tax funding. For instance, your IRA or 401(k) account. Using pre-tax funding means that you are at once building a nest egg for your retirement, as well as reducing your gross income. The lower your gross income, the less you’ll owe in federal income taxes. As long as you follow the rules regarding account disbursements, you’ll find that future taxation won’t alleviate the benefits of saving now, either.
Start Saving for College Now
If you’re not yet a parent or your children are young, it seems like you have all the time in the world to save for their college education. That time goes by faster than you will believe. You also run the risk of having your efforts derailed by other costs that crop up during life – braces, accidents, clothing to cover growth spurts, cars when they get old enough. These are just a few of the ways that life can eat into your ability to save. The good news is that you can open a college savings fund now and start saving for their future education. You’ll also be able to deduct those contributions from your taxes, reducing your income and tax liability while simultaneously building a solid future for your child.
More Than Retirement Accounts
In addition to building your nest egg through contributions to your IRA and 401(k), you need to take a more active role in your investing. Adding mutual funds and other slow-growth, low-risk investment vehicles gives you access to a solution to build your wealth for the future, while deferring your tax liability. When properly mixed, retirement funds, stocks and bonds can deliver the right conditions to foster future financial stability while also reducing your immediate and longer-term tax debt.
Save with a Goal
Too many Americans save, but have no real idea of why they’re saving. Sure, you’re socking away money for the future, but for what, in particular? Save with a plan. This allows you to build your nest egg now, but put that money to work when you need it most in order to help you achieve your plans. Are you saving for the down payment on a second home? Want to invest in a vacation home? Planning an international vacation and need to make sure you have the bankroll to pull it off? Maybe you envision yourself spending half the year at the day job and the other half on a spacious catamaran cruising tropical waters? Whatever the case, set your goals. This allows you to track progress and make smart decisions in order to achieve things that have meaning and value to you, personally.
Not Just Any Goals Will Do
While you should certainly set goals that matter to you, personally, and to your family, not just any old goals will work. They need to be SMART. That is, they need to be specific, measurable, attainable, realistic and trackable. If your goals meet those requirements, then you’ll be able to plan effectively to not only secure a stable financial future, but ensure that the IRS does not take a larger bite out of your finances than absolutely necessary. In fact, with the right long-term planning and a sound strategy created with a tax professional, there is no reason that you cannot reduce your income tax liability by a significant amount while still enjoying the lifestyle that you want.
Follow a Budget
One of the most important tips for building a stronger, more stable financial future for yourself and your family is to create a workable budget. Your budget should ensure there is more than ample cash to meet your current and ongoing financial obligations, and that you still have enough to put away for the future.
Note that a good budget does not necessarily mean that you have a ton of cash available for discretionary spending. In fact, a good budget tries to account for every single dollar while leaving only the barest minimum laying around for impulse purchases and the like. This ensures that you are actually putting most of your money to work for your, rather than “frittering” it away.
Stick to Your Plan
Once you’ve created a plan and set a budget, it’s time for the most difficult step for many people – sticking to it. This is particularly true once you begin to amass a sizeable amount in your savings and retirement accounts. It can be incredibly tempting to pull from those funding sources, despite the many drawbacks and penalties imposed. Resist that temptation. Stay the course. Stick to your plan.
Find the Right Help
Perhaps the simplest, yet most important tip to help you plan for your future while minimizing the impact of personal taxes on your financial outlook is this – work with a professional. Yes, much of this can be done on your own, but you cannot replace the insight, knowledge and instincts of seasoned financial professional. From planning for your future to identifying crucial means of reducing your tax liability, the pros offer more than just a helping hand.