When it turns out that you owe a lot of money to the IRS, it is best to save money on taxes in any way possible. One of the ways for me to do that is by getting the most out of my tax saver benefit (TSB) plan at work.
What is a Tax Saver Benefit (TSB) Plan?
At our place of employment the TSB is a flexible spending plan that allows employees to set aside pre-tax dollars for use on either child care during the year or medically related expenses that aren’t covered by insurance such as deductibles and co-pays. Some employers may refer to these plans as flexible spending accounts or plans or “cafeteria plans”.
For 2012, the maximum that we can contribute is $6,000 for either child care, medical expenses or a combination of both. Since my wife stayed at home when the kids were younger and now we don’t need child care, we have always selected the medical expense option.
The difficulties associated with these plans is that you have to use the money or you would lose it. So it is imperative that an accurate assessment of needs during the upcoming year be made since the anticipate payroll deductions are determined each fall for the following year. This is different from a Health Savings Account (HSA) in which the money will roll over from year to year and can be invested as well.
Speaking of the HSA…
It used to be that I didn’t have a Health Savings Account at work, but now that it is available, I have signed up for that plus a high deductible health plan. Because I have an HSA, the impact on the TSB is a little bit tricky. I can no longer use the TSB for co-pays or other medical expenses. That is what the HSA is for. Instead, the TSB is basically for eyes and teeth now.
Having six kids means a fair amount of dental work and routine care during the year, so I am able to take advantage of the TSB and save some money on my taxes. Believe me, every bit helps.
Now this year, in order to maximize the benefit that I am receiving, I called the orthodontist in November before the enrollment period to estimate my costs for this year and set aside that amount plus a little bit extra. The kids are getting into that age where they are getting braces so it is relatively easy to figure out the costs that will be incurred in 2012. I plan on doing the same thing for the next year since the last 2 kids are getting close to that age.
In the meantime, thanks to our relative health, I have been able to put away money in the HSA for later and not use any of it over the past several years. Ultimately, the plan is to have it available should I need my knees replaced like my dad. They swell when I run and are often sore, but I am getting along and hope to put off any significant procedures as long as possible.
Readers, do you have a flexible spending plan or health savings account to set aside pre-tax dollars for later use?
- Flexible Spending Account: Are You in the Sweet Spot? (bargaineering.com)
There is no doubt that cash flow is one of the most important aspects to managing personal finances and building long term wealth. It is only when one spends less than one earns can the excess cash be put to good use and be used to make additional income. If you are constantly spending more than you make, then it becomes impossible to begin to build wealth.
It took me a while to realize the importance of cash flow, but now that I am trying to focus on this aspect of personal finance, I feel that I am beginning to turn the corner and will see marked improvements over the next several years. Cash flow is much different than net worth. It is possible to have many assets that do not yield much cash and to even have a positive net worth and be in danger of bankruptcy if those assets cannot be sold in a timely fashion.
Two Ways to Improve Cash Flow
The concept of improving cash flow is simple and yet can be difficult to implement. You can either make more money, spend less money, or work on a combination of the two. I am working on a combination of the two simultaneously.
First, I am saving money by using extra cash flow to pay off debt. I have managed to pay off a business credit card and a business credit line in the past 6 months. This freed up almost $200 per month minimum that I no longer am obligated to pay each month. I am now working on paying off my Discover Card. My goal is to get it paid off by the end of the year at the latest freeing up another $200 per month out of my spending plan.
Just these small moves make it possible to restructure some of my debt to create a reasonable plan for becoming debt free over the next 6-10 years. That may seem like a long time, but I do have a lot of debt so I would be pleased to have it done in that time frame. The net impact to my monthly cash flow will be negligible and easy to manage while relieving a large debt burden off my shoulders.
Earning More Money
I am also trying to pick up extra shifts at work when possible and using my blogging income solely for debt repayment. There is a limit to how much I can work, but there is plenty of room for income growth from blogging. The longer I am online, the more traffic and earnings that become possible. As debt payments are made each month, more goes to principal. There is a virtuous cycle that is created as I mentioned above.
I have other debts that will be paid off naturally over the next few years which will only continue to improve monthly cash flow. I have been paying close attention to the debt balances and the minimum monthly payments. Each month, they are declining leaving more room in the budget although I am committed to paying more than the minimums and creating more and more breathing room.
Looking for More Ways to Improve Cash Flow
There are other places that I could be saving money so I will be constantly reviewing these areas as well. Looking at costs for insurance, trying to get lower interest rates for debts, eating out less and more frugally when we do are just some of the ways to save money. I am also doing what I can to grow my online earnings through expansion of blogging opportunities.
I am trying to increase my focus on dividend stocks, but that doesn’t help me in the near term because they are in retirement accounts. However, the experience and knowledge gained is invaluable for when debts have been retired and cash producing assets could be purchased.
Blogging has provided a great opportunity to focus the mind and to actually accomplish tasks. The accountability is awesome. When I started this blog, I had just come to the conclusion that cash flow was one of the most important priorities on which I needed to focus for a while. Hence, the name of the blog. Focusing on cash flow has been a great idea, and I will continue to do so documenting my progress as I move forward.
Thanks for reading and joining me on this journey.
Categories: Earning, Spending Tags: Discover Card, Free Cash Flow, Money, blogging, cash flow, debt, earning money, make more money, monthly budget, net worth, paying off debt, saving money, spending plan
After reading the news that German bonds were yielding a negative return, I couldn’t help but wonder why any sane investor would intentionally invest in something that was guaranteed to lose money? It makes absolutely no sense to me unless investors felt that every other alternative was guaranteed to lose more money over the expected holding period. It would seem to me that stuffing cash under the mattress would be a better alternative. Maybe I am missing something, but I really don’t think so.
Investing in Guaranteed Winners
Instead, how about investing in a guaranteed winner? That is exactly what I plan on doing this year. In fact, I will be getting a return of over 20% by paying off my Discover Credit Card. It will be difficult to come up with any better investment in 2012 for my extra money. Can the stock market guarantee a 20% return this year? Will gold or silver show those kind of gains? It would be nice, but it isn’t assured.
Instead, paying off any debt would be better than investing in German bonds! Even paying down a 4% mortgage is a better way to spend money than buying bonds that are going to lose. I am simply dumbfounded and don’t really know what to say. Please explain this to me if you have any insight at all.
I guess I should consider myself somewhat fortunate since by having some credit card debt, deciding what to do with my money this year is a straightforward decision. The return is great, my cash flow will improve each month throughout the year, and the best part is that it is all tax free.
Blogging Earnings Attacking Debt
I will be using the earnings from this blog for paying off debt and attacking the Discover Card. Last month the balance was about $8500, and I made a $450 payment yesterday. I will have some expenses this month with the giveaway, but hope to be able to make an additional payment in February.
Now if I can manage to make $30,000 as part of the $30K Challenge and net about 50% profit, then I will be able to pay off the Discover Card and move on to additional debt as well. That is a big motivator to keep working hard and maintaining focus.
Of course, I owe it all to you for taking the time to read my blog and am incredibly thankful for the opportunity to share my thoughts and pay off some debt at the same time. But I do want to make sure that you get the chance to enter the giveaway celebrating my 100th post here on Cash Flow Mantra. So if you haven’t entered yet, be sure to do so for your chance to win.