Set Boundaries to Achieve Financial Goals

Research indicates that one of the best ways to stick with goals is to set boundaries. In other words, draw a “line in the sand” and develop personal policies to help say “no,” resist temptation, and stay on course.

One way to set boundaries is to change your response to inevitable temptations. According to research cited by productivity expert James Clear, the words “I don’t” are a much more effective response to temptation than the words “I can’t.” In one study, respondents were divided into two groups. When faced with temptation to eat chocolate candy, one group was told to say “I can’t do X” and the other was told “I don’t do X.” Those that used the words “I don’t” succumbed to temptation to eat candy bars much less frequently (36% versus 61%).

 

Clear notes that words “frame your sense of empowerment and control” and can result in very different actions:

 

• “I can’t” sounds like someone else is in control and forcing you to do something that you don’t want to do.
   
• “I don’t” sounds like you are in control and that you have control and power over the situation.
   
  How can you apply this information? Write personal finance “I don’t” statements. Below are five examples:
   

• I don’t pay interest and fees to use credit cards
• I don’t get car loans longer than 4 years
• I don’t invest in any investment product that I don’t understand and feel comfortable with
• I don’t use payday loans and pawn shops
• I don’t pay bills late
   

• 
  

Tax Season Action Steps

Tax season is the time to, not only file your tax return, but to take action to do income tax planning. Below are three recommendations to consider:

Revisit Your W-4 Form- Taxpayers should complete a new W-4 form for tax withholding at their place of employment when life changes in a way that affects their income taxes (e.g., marriage or the birth of a child). In addition, withholding may need to change as a result of the Tax Cuts and Jobs Act (TCJA). The standard deduction has increased to $12,000 for singles and $24,000 for couples and itemized deductions for state income taxes and local property taxes (i.e., so-called SALT deductions) are capped at $10,000. As a result, fewer taxpayers will be able itemize deductions for mortgage interest and charitable contributions in the future.

Know Your New Tax Bracket- The tax savings for itemized deductions (if they exceed the standard deduction) is based on a taxpayer’s marginal tax rate, i.e., the rate paid on the highest dollar of earnings. There are seven different tax rates in 2018 as a result of the TCJA: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The higher the marginal tax rate, the more a taxpayer benefits from tax-deductible expenses.

Take Advantage of Investment Tax Breaks- Examples include Roth and Traditional IRAs for all workers with earned income and SEP accounts for those with self-employment income. Other tax-advantaged strategies are holding investments in taxable accounts for more than a year to qualify for long-term capital gains tax rates and purchasing tax-deferred annuities (note: select only annuities with low expenses).

Tax Time is a Good Time to Review Your Tax Withholding

Income tax liability, the amount that someone owes, is based on taxable income, deductions, exemptions, and credits.  A small refund, say $500 or less, is fine, but if you’re getting back a lot more, you’re losing foregone interest on money that could have been saved.  You also run the risk of having to wait for a large sum if you are an identity theft victim.

The amount of the income tax withholding is based on the number of allowances that a person notes on a W-4 form filed with their employer or quarterly estimated taxes sent to the IRS (if self-employed). If income taxes are over-withheld, a paycheck is smaller, and a tax refund is larger.  In simple terms, tax withholding can be explained this way:

• More  withholding =  Smaller paycheck = Bigger tax refund
   
• Less withholding = Larger paycheck = Smaller tax refund or additional taxes owed to the IRS
   
  The Employee’s Withholding Allowance Certificate section on the bottom of a W-4 form tells employers how much tax to withhold based on a formula from the IRS.  Anyone can change their W-4 form at any time with their employer and undo their over-withholding. Just be careful not to overdo it.
  Essentially, taxpayers must pay 90% of their current year tax liability to avoid a penalty plus interest.  However, there is a “safe harbor” exception : no penalties are due if a taxpayer paid at least 100% of their prior year’s tax bill (i.e.,  tax due on their prior year’s tax return) or 110% of the prior year’s tax if adjusted gross income (AGI) was more than $150,000.
  The Tax Cuts and Jobs Act of 2017 changed the IRS withholding tables used by employers. To determine if your personal tax withholding is still accurate, follow this three-step process:

1. Do a calculation of the new tax law impact on your tax liability using an online calculator.
2. Determine the tax withholding change in your first paycheck after withholding changes take effect and multiply that number by the number of remaining paychecks in 2018,
3. Compare the results of steps 1 and 2 and adjust your W-4 form, if needed, to align the numbers better.
    

4th Edition of Money Talk: A Financial Guide for Women Available Online

Lack of financial savvy can put women (and men) at a substantial disadvantage.  Statistics say it is only a matter of time before 85% to 90% of women will be on their own financially.  Some will never marry, some will see their marriages end in divorce, and many will outlive their husbands. Women also have lower average earnings than men, more gaps in their employment history due to child rearing and/or care of elderly parents, greater average life expectancies, and more severe impacts resulting from life events like widowhood and divorce.

Enter Money Talk: A Financial Guide for Women, a 198-page workbook that explains basic personal finance concepts and contains dozens of worksheets to apply the content personally. The 4^th edition of the book was revised in 2018 to include the 2017 Tax Cuts and Jobs Act as well as changes to credit laws, health insurance rules, Social Security, estate planning, and other financial topics. I initially wrote Money Talk in 2004 with former Rutgers Cooperative Extension colleague Patricia Q. Brennan and oversaw the 2018 revision.

A copy of Money Talk: A Financial Guide for Women is available online. The book can be accessed in its entirety or by individual sections using the links below.

Total Money Talk Book (198 pages)

Money Talk Book Front Material (8 pages)

Money Talk Book Back Material (12 pages)

Session 1: Financial Basics (44 pages)

Session 2: Are You Covered? Insurance Basics (26 pages)

Session 3: Investing Basics (30 pages)

Session 4: Investing for Retirement (44 pages)

Session 5: Planning for Future Life Events (34 pages)