It’s Time to Streamline Your Budget for the Rising Costs of Winter
Winter is coming. Oil and gas prices are going up. Electric bills are expected to be higher. Credit card interest rates aren’t coming down any time soon. Meanwhile, consumers are still struggling with price increases on food and basic services. Homeowners need to be prepared for this. Now is the time to streamline your budget for the rising costs of winter.
There are steps you can take to cut your expenses and changes you can make that will help you save money when you file your taxes next year. Think holistically. The struggles of this season may fuel a sense of desperation for homeowners working with limited funds. Modifying your expenses and spending patterns today can ease some of that burden in the future.
The first step in this process is to review your budget. Make sure that it includes all your expenses, even those that are deemed “non-essential” or “immaterial.” That $11.99 a month subscription to Netflix might seem too small to count, but it’s twelve bucks a month you don’t have for other expenses. Include it in your budget review.
Separating Essential and Non-Essential Expenses
Streaming services are non-essential expenses, particularly if you subscribe to several of them. Check for redundancies and eliminate the ones you use least often. Internet service is an essential service. Cable TV is a waste of money. Expensive mobile phone packages can fall on either side of the fence. Cutting or keeping them is dependent upon your lifestyle.
Separating your expenses is a cost-cutting exercise, but it’s also about developing a different mindset. Tough economic circumstances are a time to become more prudent in how you spend your money. Learning to eliminate what you don’t need at home can help you make better decisions when you’re shopping away from home or online.
A budget review is recommended by every debt management and financial literacy program, so there are dozens of online tools you can use to help you with it. Some of them are strictly budgeting tools. Others can also be used to track subscriptions. Utilize these tools to get a firm grasp on where and what you’re spending. There might be a few surprises in there.
Figure Out Which Expenses Provide Tax Breaks
Homeowners can deduct mortgage interest on their federal taxes. Self-employed individuals who work from home may be able to deduct a portion of their home expenses, equipment purchases, and supplies. While you’re reviewing your budget, start a folder on the expenses you can deduct. Make sure you have receipts. You’ll need them if the IRS requests an audit.
Green energy upgrades may also have state or federal tax implications. Examples of this are the addition of solar panels, wind turbines, or geothermal heat pumps to your home. The IRS has a Residential Clean Energy Credit that could be applied when you file taxes next year. State revenue departments may also have tax incentives that can lead to significant savings.
Having an accountant to consult with comes in handy when you do this part of your budget review. Tax laws change frequently. If you’re not a tax professional, you may not be aware of these changes. Clean energy credits are available today, but they may not be in the future. It’s important to have someone keep track of these things for you.
Tax-Loss Harvest Your Investment Portfolio
The stock market has not performed well this year. The S&P 500 is still up 11.7% YTD as of the writing of this article, but it’s down almost 2.77% over the past month. You can look at that as a bad thing, but the downward trend also creates an opportunity. Stocks that lose money can be sold. The losses will lower your taxable income when you file next year.
Selling losing stocks is called tax-loss harvesting. It provides two benefits when you do it at the end of the year. The tax benefit has already been explained. The second is a liquidity benefit. Selling stocks, either for a loss or a gain, is turning equities into cash. Extra cash in December can be used for holiday shopping, winter activities, or paying bills.
Like all accounting and investing activities, tax-loss harvesting should be done with the assistance of a financial professional. Some stocks that have taken losses this year are worth keeping. It might even be a good move to buy more shares while the prices are low. That’s the type of decision a financial advisor or financial planner can help you with.
Minimize Your Credit Card Spending
The Federal Reserve Bank raised the federal funds rate several times over the past eighteen months. This has resulted in banks raising the prime rate for lending and credit card companies increasing their annual percentage rate (APR). Have you noticed that your minimum monthly payments have gone up? This is the reason why that’s happening.
Cutting costs won’t be beneficial to you if you increase your spending. Using credit cards for holiday purchases will be more expensive this year, so try to pay cash or use your debit card whenever possible. Prices are higher also. Keep an eye out for sales and discounts that can help you bring down the cost of gift-giving this holiday season.
Don’t forget about Thanksgiving. People tend to get wrapped up in shopping for holiday gifts, but America’s annual food festival is a big deal too. Expect the cost of that turkey and all the fixings to be higher this year. You can save money on those by not using your credit card, cutting an item or two off the menu, or pooling resources with friends or family members.
The Bottom Line
Challenging economic circumstances necessitate a change in the way we spend and save money. As the cooler days of autumn come to an end and the cold of winter descends upon us, we all need to prepare for higher expenses and inflated food costs. Use the suggestions in this article as a guideline. Contact our team at D&M Accounting Services if you need help.