The information in this article is up to date through tax year 2019 (taxes filed in 2020).
Many Americans live paycheck to paycheck. In fact, this is the case for nearly 80% of U.S. workers. Building a savings account can be a huge challenge – especially when you feel like you’re barely making enough to make ends meet. Still, any money put towards savings is a great start toward better financial security.
How much should I be saving?
A good rule of thumb is to set aside 20% of each paycheck for savings, 50% for essentials (rent, food, transportation, etc.), and 30% for nonessentials. This is also knowns as the 50/30/20 plan for budgeting.
If saving 20% per paycheck right now would put you in a tight financial spot, it’s okay to start smaller. The 20% savings can be a long-term goal for you. It will take some trial and error to figure out what works. Once you get comfortable living without whatever amount of savings you’ve been setting aside, increase it a little when you get your next paycheck. You won’t miss that money quite so much once saving becomes a habit.
Find Hidden Savings in Your Taxes
Take advantage of your tax deductions
Tax deductions are subtracted from your yearly income. You can take the standard deduction (amount set by the IRS based on your filing status) or itemize your deductions (writing off specific expenses). Calculating your itemized deductions will determine which option will save you the most money.
Claim your tax credits
Tax credits are amounts subtracted from your tax bill once you’ve calculated how much you owe for income tax. Some tax credits not only reduce your bill, but they can actually increase your tax refund.
An example of a helpful refundable tax credit is the Earned Income Tax Credit. The EITC is for low to moderate income families. To find out if you qualify, read Can you Claim the Earned Income Tax Credit?
Deposit your refund
A lot of people treat their tax withholdings like forced savings. Depositing your refund straight into a savings account may be the smartest decision for you. For more tips on using your refund wisely, read Tax Refund Do’s & Don’ts.
Choose a retirement plan with a tax advantage
Choosing the right retirement plan can be confusing. Speaking with a financial advisor can help you develop a retirement strategy unique to your circumstances. For more on saving and how it can benefit you in the long run, read How Much Do I Need to Save to Retire?
Don’t overpay to file your taxes online
Do you know how you can save extra money at tax time? If your tax filing situation is simple, you can file completely free with TaxSlayer. If your return is a little more complicated because you have dependents or maybe you have a side gig, you can still save with TaxSlayer’s low-cost tax filing options.
