As the wife of a fighter pilot, and now as the Mom of a Marine, I’ve had my share of crisis. So I’m not really new to the idea of looking a challenge in the eye.
I’ve found myself faced with life-and-death situations where there are two basic responses: panic or strategic planning. I have found that panic often leads you to “crash and burn” emotionally or financially, while strategic planning will lead to a safer landing.
As we face the Fiscal Cliff, I’ve been asked to appear on Fox News and share my thoughts about proactive ways to handle the crisis from a personal finance point of view.
Ellie’s Fiscal Cliff Financial Strategies
1) Maximize Tax Strategies to Offset a Tax Increase
- If the AMT (Alternative Minimum Tax) patch is not approved, 60 million Americans will pay more in taxes – an average of $3500 per family
- Prepay 2013 college tuition and fees if you haven’t maxed out the $2500 American Opportunity Credit
- If you itemize, make donations to IRS-qualified organizations online
- Stay informed on updated tax law changes by going to IRS.gov or TaxAct.com to get accurate and up-to-date info on all the tax deductions you qualify for and to get updated tax forms and computer systems
- Don’t pay for tax prep, when there are free and thorough solutions and don’t trust minimally trained seasonal tax preparers
- Expect to take more time to get refunds due to these problems. The fastest way to get this year’s refund is to file taxes online, e-file and choose direct deposit
2) Maximize 401(k) contributions and IRA contributions
- For 2012 IRAs, up to $5,000 ($6,000 if you are over age 50) + consider converting retirement accounts to a Roth IRA
- For 2012 401(k)s up to $17,000 ($22,500 if you are over age 50)
3) Maximize contributions to Coverdell Education Savings Accounts
- Contribute up to $2000 per beneficiary because this will decrease to $500 in 2013
4) Be Smart About the Stock Market
- Don’t panic and bail out of the market
- Only sell those stocks you were going to sell anyway or investments that have generated deductible losses to offset any gains.
- The market is only expected to adjust 3% maximum
- The average portfolio is 70% stocks and 30% bonds, you could adjust to 60% stocks and 40% bonds, but don’t do any dramatic repositioning
5) Don’t go “All Cash”
- This is a sure sign of “The-Sky-is-Falling- Chicken-Little” kind of panic
- If you do that, you might as well bury your cash in a Mason jar in the back yard
6) Cut the Fat in Your Household Budget
- In order to bolster your emergency fund
- In case taxes take an extra tax bite out of your budget
- It’s smart to spend smart whether there’s a Fiscal Cliff or not
7) Delay Purchase of High Ticketed Depreciating Items
- Now is not the time to get the new Mercedes SLS Roadster or a 96” LED HD 3D Television!
Be sure to let me know YOUR Fiscal Cliff Strategies and feel free to share this with your friends.
America’s Family Financial Expert (R)