Found Money – Part I

Published on: May 24, 2003

by Matt Bell

In recent months this space has been used to talk about some of the most important fundamentals of wise money management: setting financial goals that are very motivating to you, breaking them down to a monthly price tag you can act on today, and using that frequently maligned financial tool favored by a majority of millionaires but very few others—a budget.

This month the objective is to free up some extra money in your budget to help fund those goals you identified.

The first source is one that two-thirds of all taxpayers have available to them: income taxes. No, I’m not suggesting that you become a tax dodger. I just want you to stop giving the government interest-free loans. Each year two-thirds of all taxpayers receive a refund. Certainly you could find a better use for that money than letting the government have it for the year.

I’d like you to get in the habit of figuring out your taxes during the year (do yours this weekend!) with the goal of adjusting your withholding so that by tax time you neither owe money nor are you owed money.

If you’re paid a salary you can easily anticipate your income for the year, then make your best assumptions about any deductions you’ll take if you file a schedule A, and see what your tax bill is likely to be. Then multiply out your current withholding to see if you’ll be owed a refund when the year is through. If so, talk to your human resources department about changing your withholding so that you’ll owe as close to nothing as possible.

If you’re self-employed this will be a little trickier. One mistake many self-employed people make is over-estimating their income. So, be conservative when making your estimates.

Lastly, do this exercise again at the start of the third quarter to see if anything has changed and, if necessary, adjust your withholding again.

My second money-saving idea is to use cash instead of credit cards as much as possible. According to Ron Blue, a financial planner and author of Master Your Money, using cash will cause you to spend about one-third less than if you had used your credit cards.

A Purdue University study found that the savings could be even more dramatic. In the study, two groups of people were instructed to buy a pocket camera. One group was told to pay cash; the other was told to use credit. The group that used cash paid an average of $29.58, while the credit card group paid an average of $52.67.

Credit cards just don’t seem very real, leading people to spend more than they would otherwise. On the other hand, peeling real dollars out of your purse or wallet is very real and will often make you think twice about your purchases.

The third area of focus is clothing, which can be a real budget buster for many people. If you aren’t already, get acquainted with stores such as Nordstrom Rack, T.J. Maxx, Marshalls and others that sell great clothes at deeply discounted prices.

I thought I knew many of the tricks of saving money until I met my wife. At the time, she was working for a non-profit organization, making what anyone would consider to be a low salary. However, she had paid off her car, was debt-free, had savings, and always looked great. My favorite money saving story about her involves a funky leopard skin print winter hat that she often wore. She regularly got compliments on the hat. In fact, once while walking in Chicago’s downtown area, a well-dressed woman was more than complimentary; she had to know where my wife got that hat. The answer turned out to be quite a surprise. Not only did she get the hat at a thrift shop, but she found it among a bin of clothes that the shop couldn’t unload and was about to throw away. She got the hat for free! It’s amazing how much you can save when you put your mind to it.

My last tip for this month is to get and use a library card. Our taxes pay for our libraries so why not make use of your books, CDs, DVDs and videos? According to the American Library Association, almost two-thirds of all Americans age 18 and older have a library card, a figure that is borne out by participants in workshops I’ve led over the years. However, there are a lot fewer hands in the air when I ask how many have used their library card recently.

Perhaps the greatest key to freeing up cash flow is to have clearly established financial goals that are very exciting to you. Those that have figured out where they’re going find all sorts of creative ways to spend less so they can save for their goals. They don’t hang their heads low, muttering about having to do without or making sacrifices. They’re happy to do what it takes to make their budget work, knowing that they’re taking proactive steps to accomplish their goals.

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