Here we are, in February, looking at our January (read: post-holiday) credit card bills – while knowing that tax-season is looming ahead – and wondering just how we’re going to make good on our New Year’s economic resolutions. Like many of us, you’ve probably already decided that THIS is the year to get a handle on your finances. You aren’t alone; financial resolutions rank number seven on usa.gov’s website under their “Top Ten New Year’s Resolutions.”

Past
So let’s get back to those credit card bills. They aren’t going to go away any time soon, and until you have a handle on your past spending habits and accumulated bills, you aren’t going to be able to get ahead on your present and future. Sit down and take a good look at your finances. See patterns in your spending habits that can be changed and do it.

For some, that just sounds overwhelming, but it’s really worth it. Matthew Egnew, CPA and Partner, Director of Tax Services at Hansen, Barnett & Maxwell, P.C. in Salt Lake City, Utah, agrees. “My recommendation for families that seem to be struggling to make ends meet but want to start saving … would be first to really get a handle on how they are spending their money and looking for ways to cut back a little.”

Start by taking a look at where your money has already gone. It may sound elementary, but create a list of your monthly outgoing expenses. And don’t shirk! Include those lattes and ballet lessons. Every bit counts. Once you have a “bottom line” compare that with your actual net income and see what wiggle room you have – if you have any at all.

Present
Now that you know what you spend and where, you can truly get a handle your needs versus your wants. Egnew reminds us: “I have read multiple articles and information regarding people of all income levels that are able to build a solid financial foundation. I think it is important to realize that no matter how much money people make, people tend to spend whatever they make. Without a plan, even people that make lots of money aren’t able to save and struggle making ends meet.” So take another look at your monthly bills. Reevaluate it with a fresh pair of eyes. Does your child need ballet? Can you truly afford both soccer and baseball this year? Be honest with yourself: do you really need that extra latte? Are you actually using that gym membership?

Essentially, Egnew explained, the general mindset is that the amount of money you make will make you wealthy. This is a bit of a misconception – or, old-fashioned. “[T]the real answer is not how much they make, it is how much they spend. If we plan our spending correctly anybody can build a solid financial foundation.”

Future
Now that you’ve found what you can and can’t do without, and how much that costs, Egnew “recommend[s] starting an emergency savings account first.” The general rule of thumb is to have approximately six months-worth of income saved up for emergencies. “Once they feel comfortable with how much they have in an emergency savings account, they can start looking at retirement options such as using their employers’ 401k plan or contributing to an IRA plan (either Roth or Traditional).” Egnew recommends taking advantage of employer-matched retirement plans. “This is free money to the employee.”

Children’s Future
And what about college? Despite our best efforts, our children won’t stay young forever. In addition to contributing to a retirement plan for yourselves, you should also start putting money aside for your children’s future. One of the best ways is with an education savings plan, or 529 plan. With a 529 plan, your investment grows tax free; with no taxes on the gains and it even provides an initial tax credit. It is considered an investment deferred; with no taxes on the gains when funds are used for qualified higher education expenses at an eligible institution and may even provide tax credits/deductions. It is considered an investment – the same as a401k – and many are FDIC-insured as well.

The Utah Education Savings Plan (UESP), a nonprofit state program, governed by the Utah System of Higher Education, has one of only four 529 plans in the nation to receive a Gold rating, according to Morningstar analysts. And you don’t need to live in Utah to take advantage of this program.

Lynne Ward, UESP Executive Director explains how the perks of having a UESP account go beyond what you’d expect. She explained that not only is it a great way to invest a bit of extra money now for your children’s education, but anyone can contribute to your children’s accounts. Let me reiterate that one: not only can grandparents, aunts or neighbors contribute –and you, as the account owner, benefit from the gift-tax umbrella —but your own child can contribute!

In fact, it’s even a great learning tool. “We have some parents that use the quarterly returns as a tool to help teach fiscally-responsible habits and show their children how the stock market works.” Ward explains.

But what if your child decides not to attend college after all? “If your child decides not to attend college, you may still use the funds to further your own education,” Ward said.

Ward also wants the public to know that investing in UESP is for everyone – even if you’re on a fixed income. For more information about UESP, please visit their website at www.uesp.org.

With tax season just around the corner, Matt Egnew kindly provided this list of tax credits that benefit families the most that you might not be aware of. Remember, if you have any questions or hesitations, please contact your Certified Public Accountant, Financial Planner or Tax Preparer.

1. The Child Tax Credit: generally $1,000 per child; this credit is partly refundable, allowing families to receive a refund even if they have no tax liability.

2.  Education Credits for Tuition Paid: this can be tuition for either the parents or their dependent children.

3.  Dependent Care Credit: families with both spouses working may qualify for a tax credit on paying day care bills.

4.  Retirement Credit: if a family makes contributions to a retirement, there is a retirement credit available to some families.

5.  Earned Income Credit: for lower income families, this is a refundable tax credit for those who qualify.

By: Kimberly Carlson