Financial Freedom Action Plan For February

In February we're going to be finding free money. That is you'll be re-calibrating all your accounts and finding where you're spending too much money or leaving savings on the table.

During January’s activity you hopefully had a reality check and now are abiding by a spending plan that has put you on track to increase your net worth over the next year. 

Let me assure you that if you haven’t been living within your means before now, the first year is the hardest, as you are creating new behavior patterns.  If you find it difficult to stick to your plan in month two or three, go get some help and support.  Join a support group, get counseling, whatever, just get the support. 

In February your tasks can be spread out and done in smaller time allotments, but you have to get all of these tasks done in February.  Here we go

Reorganizing Your Expenses

This activity can be kind of fun.  Like bargain shopping.  What you’re going to do is get better deals for some of your expenses, like insurance.  You are going to need a phone, time to make calls, times to meet with providers and brokers. The internet for research. 

Insurance:  If you haven’t done this in 12 months you’re going to shop for new insurance rates. 

If you are paying home and auto insurance and you haven’t bundled these then you’re going to call around, go online and get at least 3 (5 is better) quotes for a new bundled insurance plan.  If you haven’t had any mishaps for awhile odds are you can save some money here. 

First look at your employee or professional organization’s insurance deals.  You can usually get the best rates when you belong to some organization.  Whether you do or not, still get the 3 to 5 quotes.  Then, if it’s possible to save even a little money, switch.  If you can handle raising your deductibles, do it.

Another are a lot of people pay too much of their money is on the interest rates they're paying. Here's what you can do about it.

Interest Rates: Using the data you organized in January, you should know exactly how much you are paying in interest rates.  This month you’re going to lower these rates.  Many of the credit card companies will lower your rates if you agree to an automatic deduction type payment. 

Go for it. It’s going to save you money.  If you can affordably lower your mortgage interest rate start the process of a refinanced mortgage.  It will be worth the hassle and your net worth will increase if you’re spending less money on interest payments. 

All of these little steps add up to significant extra "free" money if you take all the steps in February's action plan.

Using a Flexible Spending Account won't feel like it's saving you money this year, until you do your taxes next year.  These accounts allow your employer to take a certain amount of money out of your check, before taxes for medical, dental, child care and many other expenses you probably have. 

Then when you have those expenses you do a little paperwork (online) and you are reimbursed the expense out of the money you've already set aside. 

Why this is something you want to do is because you aren't out any money, but your taxable income will be lowered by however much you had your employer deduct each month.

Here's an example.  Say you're paying a monthly payment for your kid's braces (let's say it's $100).  This is a dental expense.  So you have that monthly payment amount taken out of your monthly check before taxes.  After you make that month's payment  you then do the paperwork and you are reimbursed the $100. 

When you go to do your taxes next year, your taxable income has now been reduced by $1200 because you were using this plan for expenses you're paying for anyway.  It is an amazingly great way to save some money that so many people don't take advantage of.

If your employer offers this benefit sign up for it.  You will be able to figure out how much to budget for it because you did all that data analysis in January.  Be a little conservative so you aren’t left with a balance at the end of the year.  The good news is this action will decrease the amount of taxable income you’ll have to claim next year.

Sometime around the middle of February you should be able to do your taxes.  Try to do them yourself using Turbo Tax or one of the free or cheap softwares.  If you can’t handle that go to H&R Block as they are the cheapest of the tax return services. 

Don’t have your Uncle Phil do your taxes (sorry Uncle Phil) as you won’t be covered in case he screws up and you get audited.  You have some protection if you’re audited with the software or the tax professional.

If you are due a refund do the following.

Talk with your tax person or do the math yourself and then go and decrease the amount you are having your employer take out of your paycheck. 

Then put that extra amount that shows up on your paycheck right into your savings as if you never saw it, for the rest of this year. 

Continue to live on the net amount you were already living on.

When you get the refund stash it into the savings account you're putting the extra money into,  don’t even look at it.

Get direct deposit, then you won’t be tempted to spend that money.  Don’t worry. Life won’t always be this strict.  This plan is just for one year and then you’ll evaluate it and revise it for next year. You'll be amazed at the money you saved in one year and that earned you interest, no matter how little, that you wouldn't have earned lending it to Uncle Sam.

If you owe money do the following.

Talk with your tax person or do the math yourself and increase the amount you are having withdrawn.  If you have the money to pay your tax bill, put it aside in an interest bearing account and send it in when April comes.

If you don’t have enough money, set aside what you can and then make a plan to sell some assets or get extra work to earn the difference.  Do what you can to not pay your tax bill with a credit card or loan.

If you have any loans or mortgages contact your lenders and see about refinancing the loan for a better interest rate.  This action is dependent on the current interest rate situation and whether the closing costs are reasonable,  but if there are better rates and you’ve been current on your payments over the past year you may be able to save some money.  If it makes sense to refinance your home to pay off consumer debt without being risky with your equity, then by all means go for it.  

That's It For February

Once you’ve gone through all the ways you could reorganize what you are paying for all these costs and made any adjustments, calculate the amount of money you will save each month. 

You should see these savings in March at the earliest or April. 

When you do, again, don’t spend this extra money.  Set it aside each month in that savings account.  Once more, pretend like it doesn’t exist and continue to live by the plan you created in January.

When you're ready move on to March's action plan.