Create Your Post-College Budget In 6 Easy Steps

Establish A Post-College Budget In Just 6 Steps

Congratulations on having earned your diploma and on having received a job offer. This time of life is guaranteed to be exciting.

As you begin planning your next moves, it is vital to have a budget. How do you create a post-college budget? Following are several things that I discovered after having graduated and started my first adult job.

Consider Your Monthly Income

Investment
Investment (Photo credit: LendingMemo)

You might have an awesome starting salary, but you should not use this figure to write out your budget. Determine how much you’re going to be bringing in after taxes every month instead. Remember that federal taxes, social security and Medicare are all going to be deducted from your check.

Employees are going to have to pay 6.2% of their wage earnings, up to minimum wage. A tax rate of 1.45% is paid for Medicare. If you are self-employed, however, these rates are going to be double.

Next, figure your federal income tax rate according to your projected earnings. You will be surprised by how much is going to be deducted from your check.

Think About Retirement
Decide how much you are going to invest in your 401k. Will your employer be matching your 401k? Use this match to your benefit as it is included in your compensation. Invest the minimum in order to receive this match.

If you are able to, make an immediate effort to max out your 401k. Should you invest with pre-tax money, this is going to lower the rate for your federal income tax at the year’s end. Always use low-cost funds to invest.
H&R Block gives amazing tips for investing.

Take Advantage of Pre-Tax Dollars

Use a Health Savings Account or a Flexible Savings Account to save pre-tax dollars. Do you have forthcoming medical expenses that you can cover with pre-tax money? Braces, contacts, glasses, doctor visits and prescriptions are things that you can use this money for. These savings are automatic.

Wisely Choose Your Housing
It is very easy to move into a luxury apartment after graduating. This is what I did. In retrospect, I wish I chose an apartment that was more affordable.

Housing advice varies. Some people say that you should spend no more than 30% of your earnings for a rental or 28% for your mortgage.

List Your Monthly Expenses
List all of the bills that you need to pay each month including sewage, water, rent, Internet, electricity, groceries, cable, car insurance, gym fees, debt payments, renter’s insurance, cell phone services, etc. You will have to allocate you monthly earnings for these expenses. Budgets are used to track and manage this spending.

Save Money!
Put aside monies to create an emergency fund. You never know when car maintenance issues and other expenses will arise.

You can also invest in a traditional IRA or ROTH to take your savings plan a bit further.

Creating a solid financial house early in life will assure you of a comfortable financial future.

Know Your Tax Responsibilities on Insurance

When purchasing life insurance, it is important to consider all of the circumstances that could affect the amount of money needed by beneficiaries. One issue everyone should consider is taxation. Many people wonder if they have to pay taxes on life insurance. Many people assume that all proceeds from life insurance are tax-exempt, but the truth is actually more complicated.
Death benefits of a life insurance policy, in general, are free from federal income tax when distributed by the insurance company to a named beneficiary or multiple beneficiaries. In other words, when a husband dies, his wife usually does not have to pay taxes on the money she receives from the insurance company as payment. If the husband has a $100,000 life insurance policy, the wife does not have to pay federal income taxes on that $100,000.

Things begin to get more complicated if the husband, before his death, instructs the insurance company to pay that $100,000 in installments of, say, $20,000. The insurance company will distribute the money as instructed. The money on deposit will earn interest, which is taxable. The principle is not taxed, no matter how it is distributed.

Another complication occurs when the owner of an insurance policy transfers ownership to another person or party before his death, for money or other consideration of value. The benefits paid to the beneficiary in this case could be considered taxable income. This should be discussed with a tax professional before completing such a transaction.

Anyone purchasing life insurance should know that life insurance policies may be subject to federal estate tax (not income tax) if the deceased has an ownership interest in the policy. If the insured person has any control over the policy, including the right to cancel it, borrow against it or change the beneficiary, that person is considered to own the policy. When the owner of the policy dies, the proceeds may be subject to federal estate tax. In most cases, if the beneficiary is the spouse, estate tax is not assessed on the insurance benefits. However, these taxes may be assessed when the spouse dies. This issue should be discussed with a professional during estate planning.

It may seem unreasonable that any insurance benefit should be taxed. As stated, life insurance proceeds paid to a beneficiary are usually not subject to federal income tax. Other tax situations may arise and should be discussed with a qualified professional.

But what about the question of insurance being taxed? With the value of employee health benefits appearing on the 2011 Form W-2, many people worry that their health insurance is being taxed. This is not the case. The health benefits information is printed on the W-2 for informational purposes only.

However, in 2018, insurers will pay a 40% tax on the portion of “Cadillac” health plans sponsored by employers that exceeds $10,200 for individuals or $27,500 for families. Insurers are likely to pass the higher costs along to employers. Employers will likely pass the costs to employees or reduce coverage to slip under the tax threshold. For now medical insurance benefits, like life insurance benefits, are not subject to federal income tax.

The ‘Buffett Rule’ For Millionaires – Would It Work?

President Barack Obama and Warren Buffett in t...
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Warren Buffet is a known millionaire – one that has worked his way through life and followed the tax rules. He has many employees. Recently, attention has been called to the fact that his secretary pays less in taxes (or is put to a lower tax rate than he).

Those that see this as impossible simply have not looked at the various head’s of company’s in the past. Yes, they make more money, but yes, they are responsible for a lot more and have to determine how to pay all the bills for a company, hire many employees and allocate benefits for those that work for them. This is why they are able to decrease their taxes because they have businesses and therefore have tax loops and breaks.

Having a business is how the world works. If no one is able to own a business because it is too expensive, then less people have work. One company may employ a variety of people. Their expenses are astronomical. By putting enormous tax burdens on employers, the employment situation will get very dire, more than it already is.

The “Warren Buffett Rule” takes place only in a society where everyone would be consider to make equal wages and pay out equally for where they work. Since that will never be the case, it would simply be impossible to do. By super taxing the very rich and those that own companies and strange predicament would happen. More people would lose their jobs because it would simply have to be.

Fair tax breaks for companies is the only clear way to keep an economy solvent. When companies can’t afford to pay people to work, then the people without jobs can’t afford to do anything and that stops the economy, putting it at far more peril than if people were employed.

The richest people spend more money. They keep a lot of things afloat when they go about vacationing and dining in expensive places. Taxing them enormously will keep them from doing what they need or want to do. When they are out and about they keep many people working in all different industries. That is the way that it will work to the benefit of most people.

Next time someone wants to know how much another is paying in taxes, the clear safe bet is to do your own, pay your own and be glad you have a job. The minute that a person succumbs to the argument of making the rich pay more than the poor, will in turn cause the poorest of all to become unemployed, virtually creating a mere depression of sorts.

The taxes should remain the same, at least for now. More jobs will have promise without raising any taxes. In fact, the more jobs that are created, the better the economy will improve. Otherwise there will be an economic disaster.

Michelle Heyward is a financial advisor, and helps consumers plan for greener pastures.  Did you know you can often save twenty percent on your auto insurance premiums by simply shopping around?  Visit Kanetix to do an auto insurance rate comparison.