Q: I made a New Year’s resolution to make better financial decisions, but I’m not sure how to make it more specific than that. Is there something in particular that I should try to make my goal for the year? - Caleb
A: Caleb, good for you for trying to make your goal specific enough to really stay with in 2018! One of the most common resolutions centers around ways to save money, so you might want to take a look at your budget and see if you want to do something in that area. One idea would be trying to save money on unnecessary expenditures like your morning latte. Or give up cable for a less expensive television option. However, my fear with resolutions like that is the temptation to then turn around and spend those savings on something else that is equally unhelpful to your long-term financial goals.
For that reason, I like a slightly bigger-picture resolution, like increasing your 401k contribution at work by a few percentage points. Not only does that keep you from spending any new-found savings in other areas, but it still hopefully forces you into a leaner lifestyle. When you sit down to figure out where to trim those dollars elsewhere, you may find that you have to forego the latte or cable TV after all.
Another option could be finding a few small ways to increase your income. Starting a side business might be a bit grandiose for a resolution (unless you’ve been planning it for quite a while already, and were just looking for a good start date.) But something small like selling some of your un-used possessions on Etsy or eBay not only brings in some cash, but helps to de-clutter your life. You could also make the decision to finally start claiming your mileage or on-call reimbursement at your place of employment.
I hope you find something that works, and that you can stick to it long enough to make it a real habit. Good luck!
Q: I heard that the new tax plan makes it harder to give money to charity. Can you explain what that means? - Claire
Claire, Trump’s new tax plan certainly does have potential implications for charitable giving, though it’s not that it’s harder to be charitable. Rather, it removes some of the financial motivation to be charitable.
You’ve probably heard of something called the “standard deduction." For 2017, the standard was/is $12,700 for a married couple. This means that if your educational expenses, mortgage points, losses from disasters and theft, and yes, charitable contributions didn’t total at least $12,700, you would simply use the standard deduction and wouldn’t get any additional income tax savings. Households with higher incomes had an incentive to give more, because for every dollar above the standard deduction that they gave to charity, they reaped additional income tax savings.
Under Trump’s plan, the standard deduction is almost doubled. So while it is just as easy to give to charity, fewer households will now have the same incentive to be charitable because they need to give twice as much as they did in past years to get any additional income tax savings. Whereas you only had to give anything over $12,700 a year before, you now have to give over $24,000. If I know in advance that my mortgage points and out-of-pocket job training expenses are only going to total around $10,000, I might be willing to give $3,000 to charity to start getting some tax savings. But if I have to give $14,000 instead, I’m faced with the choice of making at least $14,000 in charitable contributions, or just using the standard deduction. Given that choice, it is likely that fewer people will write those extra checks, and the organizations who provide social services, as well as the people in desperate need of those services, are going to suffer.
I sincerely hope that you, and everyone else, decide to continue selflessly making charitable gifts to the causes that are important to you and to our community. It’s the only way that we can continue to grow as a society. Thanks for asking!
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