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.

The Supreme Court Decision On Healthcare Will Affect Taxes

The nation waits for the Supreme Court to announce the ruling about health-care. Many wonder how their ruling will change taxes?

Not only does the Supreme Court decide about the Affordable Care Act, but also taxes. How will their judgement change taxes?

The law must include tax cuts and increases. Even if the individual mandate is eliminated, the taxes would go on. Unless the Supreme Court eliminates the entire healthcare bill.

The mandate tax will be the punishment people would owe for not buying insurance. The High Court must decide whether it is considered a penalty or a tax.

There are important ACA tax cuts for small businesses that will help with purchasing insurance for their workers. There was over a million dollars spent on lawyers and fees to challenge the healthcare law by the NFIB.

Is it practical to have the subsidy if the Court overthrows the key elements of the reform? It is a sure thing that the NFIB will agree.

The law contains many tax increases, that includes the excise tax on top-value, employer-sponsored healthcare plans which will start in 2018. There is be a provision that will make it harder for people to itemize medical costs.

There are a couple of other tax increases. The first increase is a .9% Medicare tax for those making above a certain threshold. This money would finance the elder care health system. The other is the 3.8% tax that households who have non-traditional income will have to bear. Some feel this is a surtax and the real purpose is to bankroll part of the cost of the ACA.

The Supreme Court decision may hit upper income families hard. In 2013, the two levies would hike taxes on households making $500,000 to $1 million, their taxes would increase by $4,600. For those making more than a million they would pay $41,000 in taxes.

Even for lower income families, there will be a tax. Married couples making over $250,000 combined, and single taxpayers making $125,000 will face a brand new tax. Households needing to pay these taxes over the next decade are going to double in number, because inflation is not taken into account. It will reach 4.6% from the 2.4% that it is now.

These tax provision should not be forgotten, even if the Supreme Court leaves them untouched. I think we shall hear about them again.

After Fierce Contention Over Payroll Tax, GOP Plays Offense To Dems.

With reputations damaged after payroll tax cut squabbles, Republicans in congress fight to change topics by emphasizing job creation. Pushing legislation that would bring jobs to the suffering economy, the GOP contends that bills promoting energy and transportation services, as well as lowering business tax and promoting capital, will reinvigorate the weak job market.

On the other hand, Democrats fight to retain control by forcing the Republican vote on needed programs paid for by tax hikes on the highest wage earners, in an election year nonetheless.

Both legislative positions emphasize political strategy drawn from the fight over payroll. The battle came to a close Friday evening after Congress utilized bipartisan compromise to deliver President Obama a bill totaling 143 billion in revenue. The package is intended to keep jobless benefits for those without work, stop cuts in Medicare reimbursement, and extends a 2 percent tax cut for payroll.

Before rescinding their demands that payroll tax cuts be paid for by lowering government spending, Democrats had succeeded in painting the Republicans as opposing middle class tax brakes for over 160 million people. The GOP seeks to redirect voters to Obama’s failures on the economy, taking attention off the party’s dismal showing in an election year.

As Republicans fight to preserve jobs and lower 2012 taxes, Dems seek to extend unemployment benefits and medicare provisions that many Americans depend on. With Republican measures in danger, there is little likelihood Republican energy bills will pass the Senate let alone get Obama’s signature. However, Republicans hope to make the best of the situation by showing they are in favor of job creation.

The Debt Deal. Time To Do Your Own Tax?

Many people are confused about the recent debt deal and how it will affect them. The details of the deal raise a lot of questions and offer few answers. Federal spending will face huge cuts over the next 10 years and about one third of all cuts will come from defense and security.

One of the bills main feature is the establishment of a committee whose aim is to find a further $1.5 trillion in cuts. There are no guidelines as to where these funding cuts will be made and some commentators expect to see significant reductions in Social Security and increased taxation. However if this committee fails to come up with a comprehensive spending reduction plan then a series of automatic cuts will come into being. These cuts will hit Medicare, Medicaid, and military spending the heaviest.

There are a few things that savers and investors can do in order to protect themselves in these uncertain times. Investors should investigate how dependent the companies they hold shares in are on government contracts. These contracts will surely dry up in the coming years.

Anyone close to retirement should hold off on stopping work in order to defer their Social Security retirement plan. This will add 8% to your benefits, which is a lot more than you’ll get by putting that money in the bank.

If you are not already doing so you should do your own tax. You’ll save money by doing 2011 taxes yourself instead of hiring a professional. Once you have done your own tax for one year, you will be able to continue to make this saving for many years to come.

Self Employment Tax Issues

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People often get so swept up in the first exciting year of starting their own business, going freelance or contracting that they forget some of the more mundane, but nevertheless important changes that self-employment will bring. Along with a renewed passion for your career and control over your own destiny and potentially far greater financial rewards, there are also a number of downsides and financial hurdles to setting out on your own.

Self Employment Tax will be one of those hurdles. Self-Employment Tax is a tax that you were never required to pay as an employee, but essentially it is the self-employment version of the FICA (Federal Insurance Contributions Act) tax that is used to pay for social security and medicare and it comes out of your net earnings from your self employment. Back when you were employed by a company you probably never gave a moment’s thought to this payment because your employer would have been paying half of it, approximately 7.65% each. But now you are classified as self-employed, whether you are a sole proprietor or an independent contractor, you have to pay the full 15.3% levy yourself on your tax return. As long as you earn over $433 per annum, you must pay 15.3%. And once you reach $106,800 you then pay 2.9% for every dollar after that. The tax itself is split into two parts. Social Security receive 12.4% and Medicare receive 2.9%.

So how do you know if you need to pay it? Basically, if you’re self-employed in any way, you pay the tax. It is levied on net earnings from your business. Whether you file a Schedule C (Profit or Loss from Business), a Schedule F or a Schedule E with income from a partnership then you’re required to file a Schedule SE and pay the tax. However, it relates to income from your job and earnings, not from investments so investment income is not subject to Self-Employment Tax. Rents and royalties, dividends, interest and capital gains are therefore not taxed.

The next thing you need to consider is that when you were employed your employer would take care of paying this. Now the responsibility lies with you. Unfortunately going freelance means more paperwork and more responsibility. You need to calculate your Self-Employment tax on Schedule SE and enter this figure into the “Other Taxes” section of the 1040 form. This is so the IRS can differentiate between income tax and the SE tax. You will need to make estimates quarterly on your tax obligation in April June, September and January and if you don’t pay or they aren’t enough you could face penalties and interest.

There are, however, some ways to reduce Self – Employment tax. Firstly, you can charge your own business a rental charge for using your property. This income that you get from rent is not part of your self-employment and therefore is free from Self-Employment tax. Secondly, when calculating Self Employment tax you are permitted to reduce your income by 7.65% before you have to apply the tax rate. So if your net self-employed income is $100,ooo this is what you write on your 1040 for income tax. But on your Schedule SE the taxable amount is $100,000 less $7650 which comes to 92,350. This saves paying 15.3% tax on $7650, making a saving of $1170.

Alex Simmonds is a journalist and copywriter living in the UK. He can currently be found writing a daily blog on contracting and  home-working for The Bedouin Group., a contractor portal.

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