I make 72k a year, I have a potential for a 5k annual bonus, it will probably happen, but be more around 3k this year(2008). My company matches dollar-for-dollar up to 6% for my 401k, and thats currently how much I contribute. I plan on writing off some college tuition expenses this year(for my MBA classes), and i would also like to deduct student loan interest..I wasnt able to deduct student loan interest in 2007 because i made over 70k(and i didnt know how to lower my AGI ahead of time). Also, i was only able to deduct 2k instead of 4k for tuition expenses cause the limit there is 65k. I currently owe about 4k on my credit cards, I dont really do much with savings or checking because I have credit card debt.. What should I do for 2008 in order to make sure i am debt free, and to maximize deductions, maybe increase my tax return when i file next year. Overall please tell me what i need to do financially to benefit myself the most? Please the more detail for me the better. Thanks!
What Are My Best Options From A Tax And Debt Standpoint?
Posted on February 9, 2010 by admin, Filed under Tax Debt
If it were me, I would:
1. contribute the absolute maximum that I could to the 401(k)
2. pay the credit card off as soon as possible (depends on your expenses, but as quickly as possible)
3. While you are paying down your credit card debt, start building an emergency fund of at least three months and preferably six months of expenses. It is better to pay the debt down a little slower and to put a bit of your available money aside in savings “just in case” something happens
4. It sounds silly, but make a budget. A budget is a tool to give you freedom. It gives you freedom from having to scrape money together for those periodic expenses that we all have (car insurance, registration, etc.). Putting a little money aside each month for each expense is much better than having to “find” a lot of money all at once to pay the bill.
5. after the credit cards are paid off, Pay yourself first! Start either a Roth or traditional IRA. You will be very happy when you retire a millionaire.
Start putting some of the money you were paying towards credit card debt into a money market or savings and start saving towards your next “big” purchase. If you save enough for your next car before your current car gives out, then you’ll have a new car with no car payments. Try to anticipate your purchases and save towards them before you actually want to make the purchases. That way you can pay cash and not have payments.
I know it’s not very glamourous, but it works, and it takes money worries out of your head and lets you have some peace.