First, Learn the Basics

       This is especially true in personal finance. You don’t have to be a seasoned financial planner to begin finding success. You don’t even need to spend a ton of time to understand the basics. They’re simple. Spend less. Earn more. Save and invest. Be wise and cautious when making purchases (goods, services, or investments). Plan ahead. Don’t pay things you don’t have to (like extra taxes). And so on. A basic education is all you need to start finding success in your personal finances.

       You don’t need an accounting degree to make a budget. You don’t have to be Warren Buffet to start investing. You don’t have to go to law school to get your estate documents in place.

Then, Take Action

       Success in personal finance is not necessarily about knowing all the right answers. It’s about taking action. Those who only read about the benefits of budgeting will never be as successful as those who actually try to make a budget and stick to it. This is true even if the doers are not successful the first time.

       You can learn by reading about the experiences of others – but only so much. Until you start creating your own experiences, the information will just be knowledge in your head. You must start using it yourself!

       Don’t think I’m discounting the value of learning, education, and research. To be truly successful, you’ll have to keep learning. But you can’t get started on the road to success unless you follow a pattern of learning, doing, learning, doing, and so on.

Avoid Danger Areas!

       I’ll end with a few cautions especially true in personal finance. In some areas of personal finance, there are unscrupulous people who will try to take advantage of your lack of education. Insurance, investing, and debt are the most common places you’ll run into this, but you can really find it anywhere. Here’s the key: Before doing something, make sure you’re aware of the possible problems/pitfalls and educate yourself on how to avoid them.

       Here’s an example. In investing and insurance, you must be aware of how advisors and salesmen get paid. If it’s commissions, know what conflicts of interest might exist. In other words, learn how people might try to rip you off and be on the lookout for those techniques.

       Even though there are risks to the learn, do, learn method, you can avoid most major mistakes by learning first about the danger areas and how to avoid them. In personal finance, be aware of those who earn commissions, learn the math of debt, and read the academic research on investing.

Now Do Something!!!

       So get out there and start doing the needed things to achieve success. Stop reading about budgeting and do it! Stop worrying about having enough for retirement and start saving! Stop dreaming of starting your own business and do it! You’re never going to get anywhere until you take action.


P.S. I think I wrote this as much for me as for anyone else. I have the curse of perfectionism, and I must battle it every day. There is no such thing as perfect in this world. Only God is perfect. So I need to stop worrying about doing everything perfectly and just start doing. What about you?

Related Articles at Provident Planning:

1. Weekend Reading – 05/28/2010
2. Debt Is Not Evil
3. Show Me in the Scriptures…
4. Investing Basics: What Is an Investment?
5. What Makes Christian Personal Finance Different?

IRS Form 4029

       IRS Form 4029 is an application for exemption from Social Security and Medicare taxes and a waiver of benefits from those programs. However, there are a few catches:

1. You must be a member of a religious group that teaches against insurance (for conscientious reasons – not because they believe it won’t be around to pay you benefits). This group must also provide a reasonable level of living for its dependent members. Finally, it must have existed continuously since December 31, 1950. It doesn’t matter if you think your group fits the description. It must be approved by the Social Security Administration. Generally, only the Amish and very conservative Mennonite groups will qualify for this specific form. I’m part of a Mennonite church and I don’t think we’d even qualify (unless the SSA knows little about the differences among Mennonites).

 

2. You’re giving up all rights to any benefits you’d be entitled to under Social Security or Medicare. So you better be ready to replace its purpose in terms of life insurance, retirement income, disability insurance, and medical insurance. While that’s no small task, my rough calculations show you’d probably be better off doing those things yourself if you’re young and make more than $30,000/year.

 

3. This exemption only applies to your self-employment earnings and earnings from employers who also qualify for this exemption. Qualifying employers will be limited to individuals, partnerships, some LLCs, and religious organizations. If you work for a corporation (C or S), this won’t do you much good. Unless, of course, you’re paid as an independent contractor and issued a Form 1099-MISC, in which case you’d be filing Schedule C and be subject to self-employment taxes.

 

4. As soon as you are no longer eligible, this exemption ends. So if you leave your religious group or if the SSA determines your group no longer qualifies, you’re back to square one. However, you can become eligible for Social Security and Medicare benefits once the exemption no longer applies.

       Basically, not many people will qualify and the exemption is fairly limited (in terms of compensation affected). However, there is another form that serves a similar purpose, but it is even more limited than this one.

IRS Form 4361

       IRS Form 4361 is an application for exemption from self-employment taxes for ministers, members of religious orders, and christian science practitioners. Again, there are quite a few limitations:

1. You must be an ordained, commissioned, or licensed minister for a church, a christian science practitioner, or a member of a religious order who has not taken a vow of poverty (like people who work for a monastery or convent but are not monks or nuns). That’s a narrow list.

 

2. You have to be conscientiously opposed or have religious beliefs that are opposed to receiving benefits from public insurance based on the performance of your duties as a minister, christian science practitioner, or member of a religious order.

 

3. This exemption only applies to your earnings in that role. If you have another job, you’ll still have to pay Social Security and Medicare taxes on those earnings and you’ll be eligible for benefits based on those earnings.

       Again, this exemption is very limited in terms of who qualifies and in its scope.

The Rest of Us Will Just Have to Deal with It

       There are no other ways to remain a U.S. Citizen and not pay Social Security and Medicare taxes unless you’re willing to move out of the country. But the real question is whether Social Security will actually run out of benefits by the time today’s young people retire. Everyone bases the idea that Social Security won’t be around on the intermediate projection in the 2008 Trustees Report. But you need to realize three things:

1. These are projections based on assumptions. There are no guarantees. People are estimating what they think will happen and running scenarios based on numerous variables. There is much room for error in these calculations.

 

2. Even under these projects, Social Security can still pay 75-78% of scheduled benefits. That’s not great news, but it’s not the end of Social Security either.

 

3. The “fixes” needed are relatively simple and not very drastic either. An increase in the Social Security tax, delay in retirement age, reduction in benefits, or a combination of all three could easily change the projections. In fact, a combination of all three solutions would probably be quite beneficial and have only a slight impact on individual situations.

       With that said, I’m still not a huge proponent of the system and I’d gladly save on my own if I had the option. But Social Security was put into place partly because people don’t save on their own. If the current state of personal finances in America is any indication, we’d likely have millions of poverty-stricken elderly due to a lack of financial discipline.

Related Articles at Provident Planning:

1. Lower Your Taxes: Contribute to a Health Savings Account
2. Do I Need to File a Tax Return?
3. Lower Your Taxes: Contribute to a Traditional IRA
4. Changing Your Name after Marriage
5. How Much Should I Save for Retirement? – Part 1: How Much Income Will I Need in Retirement?

Form 4868

       IRS Form 4868 will let you apply for an automatic 6 month extension on the due date of your tax return. You must file this form by April 15, and you can file it electronically or by paper. There’s also an option to pay by credit card or debit card over the phone or online but a convenience fee will apply. Either way, you’ll still have to pay any taxes you owe by April 15. That means you’ll have to estimate your tax liability. And you’ll want to get it close to right because interest charges will apply to any unpaid portion. If you pay at least 90% of your actual tax liability by April 15, you won’t have to worry about late payment penalties.

What if You’re Out of the Country?

       If you’re out of the country on April 15 and you’re a U.S. citizen or resident, you automatically get an extra 2 months to file your tax return without requesting an extension or filing Form 4868. If you still can’t file by June 15, then you’ll want to send in Form 4868 and pay any amount due by June 15.

Make Sure You Don’t Miss the Final Deadline!

       If you get your due date extended by 6 months, make sure you don’t miss the October 15 deadline! There’s a 5% late filing penalty for every month you’re late up to a maximum of 25% of your amount due. If you’re two months late, you’ll be charged at least $135 or the balance due, whichever is smaller. Don’t keep putting off your tax return even if you do get the extension.

Related Articles at Provident Planning:

1. Forgot Something on Your Tax Return? No Problem! File an Amended Return.
2. Do I Need to File a Tax Return?
3. The Credit CARD Act – A Summary
4. Free Tax Preparation – AARP’s Tax-Aide Program
5. Roth IRA Contribution Limits

Form 1040X

       The IRS Form 1040X is all you need to file an amended tax return. Basically, you’ll just fill out the correct information you should have put on your original tax return. Click here to download Form 1040X and the instructions. The instructions will help answer any specific questions you may have.

       If you did your original tax return using software, it’ll probably be easiest to use that same software to complete your amended return. You’ll need to follow the specific instructions for the program you used since it’ll vary. This is one of the easiest ways to file an amended return.

       If you used a tax preparer to file your return, you just need to contact them to file an amended return. (This is a good reason to avoid H&R Block, Jackson Hewitt, Liberty Tax Services, or any other seasonal tax preparation shop. They won’t be open when you need them later on in the year!) Send in the correct information and your tax preparer can fill out Form 1040X for you.

How Long Do I Have?

       Generally, you can only file an amended return within 3 years of when you filed the original return. If you file early, you are considered as filing on the deadline of that year. For example, if you filed on March 3rd the IRS would consider you as having filed on April 15th. If you filed for an extension, then the deadline of the extension will be your effective filing date.

       However, there are a few exceptions to this three year rule. First, if you’re physically or mentally unable to manage your financial affairs this deadline can be waived. Check out IRS Publication 556 for more details. There are also a number of other exceptions to the three year limit, including bad debts, worthless securities, foreign tax credits or deductions, and loss or credit carrybacks. See the instructions for Form 1040X for more information on those exceptions.

Related Articles at Provident Planning:

1. Do I Need to File a Tax Return?
2. SEP-IRA Contribution Limits
3. Free Tax Preparation – AARP’s Tax-Aide Program
4. Lower Your Taxes: Claim All Eligible Dependents
5. What Records Do I Need to Keep for My IRA Contributions?

• Traditional IRA Contribution Limits

 

• Roth IRA Contribution Limits

 

• 401(k) Plan Contribution Limits

 

• 403(b) Plan Contribution Limits

 

• 457 Plan Contribution Limits

 

• SIMPLE IRA Contribution Limits

 

• SEP-IRA Contribution Limits

       To my regular readers: Thanks for putting up with these posts as I’ve been adding this information to the website!

Related Articles at Provident Planning:

1. 457 Plan Contribution Limits
2. 401(k) Plan Contribution Limits
3. SIMPLE IRA Contribution Limits
4. 403(b) Plan Contribution Limits
5. Traditional IRA Contribution Limits