Ever wonder how to spend or properly use your money on the milestones that most of us experience at some point in our lives? TODAY Financial editor Jean Chatzky simplifies getting through these big events by sharing advice that will lead to more money for you and your family:
Why are milestones so important financially? For two reasons — the first is that they truly change your financial picture. Everything from your tax scenario to your income to your benefits to your spending may change, and that means you're better off giving the new environment you're in a little thought. Secondly, milestones present an opportunity. For many people, finances are really a back-burner subject until they hit an important life event. If you're one of those people (and a lot of us are) who only think about money on these special occasions, you want to be sure you give it its due.
Do a benefits auditDoes it make sense to swap your singles health plan for family care? It may, if your spouse works in a place where the employee contribution is very small. Weigh the cost of two single plans against family coverage.
Potential savings: $400 a year
Stop paying twice for services
These are the ways two can live more cheaply than one. Sharing cell phone minutes (saving $300 a year, more if you join a plan that lets you talk to each other for free), Internet and cable service (another $500 a year). You can also commute together — even get rid of a car if you're going in the same direction.
Potential savings: $800 a year
File jointly When you're married and still file your taxes separately, you lose some big tax benefits. Particularly when your incomes are pretty disparate, filing jointly can help you pay less in taxes. For example, if one spouse earns $75K and the other $15K, filing jointly can help you save about $1,500 in taxes a year. (If you're not sure about your particular case, ask your accountant or use a tax software program like Turbo Tax to run both scenarios.)
Potential savings: $1,500 a year
The birth of a child
Put $200 a month into a Roth IRA I know, you want to fund college. But this is an alternative that will allow you to pay for your own retirement as well as or instead of college if that's the most pressing need at that time. And remember, there is no financial aid for retirement, but there is lots of financial aid for college.
Potential aavings: $96,857
Open a UPromise account This is one of those savings programs that deposits a percentage of your purchases into a 529 account to pay for college. You can shop through the Web site, but also use your supermarket loyalty card to get percentages back on purchases of particular groceries. The potential savings is hundreds if you don't focus on it much, 5-6 thousand if you do.
Potential savings: $5,000 - $6,000
Name guardians If you already have a will, now you have to name guardians for that child. If you don't have a will — get one, and name guardians at the same time. If you don't have guardians and something happens to the two of you, getting guardianship can cost hundreds of dollars if the proceeding is NOT contested. If two people argue over guardianship it can cost tens of thousands.
Potential savings: $400 - $500
A new job
This is open enrollment period (or at least it is coming up in many companies). By opening flexible spending accounts for a) health care and b) dependent care, you can pay for up to $10,000 in health care and child- or elder-care expenses with pretax dollars and save yourself one-quarter to one-third of the cost. These are things like Lasik, braces, over-the-counter drugs and other unreimbursed health care expenses, and on the dependent care side they include day-camp, after-school programs, and on-the-books baby-sitters.
Potential savings: $2,500 - $3,300 a year
Collect 401(k) matching dollars
The average company these days will match 50 percent of 401(k) contributions up to 6 percent of your salary. Forget about the money you can earn on those investments over the long term. Let's just talk about the matching dollars — the free money — you leave on the table if you DON'T do it. For someone earning $40,000 a year …
Potential savings: $1,200 a year
Deduct job-hunting expenses
If you itemize on your taxes, remember that job-hunting expenses can be deducted. This is a deduction, not a credit. But it can include the cost of outplacement or headhunting services, travel expenses if you traveled to an interview, mileage added to your car as you drove around looking for a job.
Potential savings: $100 or $200
Buying a house
Make one extra mortgage payment a year This will reduce the term of a 30-year-mortgage to a 24-year mortgage. This will save you a bundle of money in interest alone. On a $440,000 mortgage at 6 percent, if you make one extra payment this year (once), you'll save $12,000 over the life of the loan. On a $300,000 30-year fixed rate mortgage at 6.5%, your monthly payment would be $1896.20. If you started prepayments once per year starting at the 13th month, you'll spend $299,366.05 in interest and the loan will be paid in 23 years. Without the pre-payments, you'll pay $382,636.71 in interest. Savings is $83,270.66.
Potential savings: $83,271
Raise the deductible on your homeowners policy
Going with a $1,000 deductible rather than a $500 deductible can save you 25 percent on your premiums each year. On a policy that costs $1,000, that's a savings of $250 a year.
Potential savings: $250 a year
Do an energy audit
Going through your house yourself (or hiring a professional) to go through and find areas where air is leaking, insulation is not working or is needed, or windows needing caulking can save 5 to 30 percent off the cost of your heating bills each year. That's a savings of up to $1,000 per winter. Also, switch — where you can — to compact fluorescent light bulbs, which use as much as 75 percent less energy and last up to 10 times longer. A single $20 six-pack of CFLs will save you $200 over their lifetime in energy and replacement bulbs and each bulb will keep a half ton of carbon dioxide out of the air.
Potential savings: $200
The loss of a parent
Get essential paperwork in order
The good news here is that, with the exception of a few essential documents, there's no huge rush. You'll want 5-6 copies of the death certificate so that you can apply for life insurance benefits or financial accounts. Let an employer or pension provider or Social Security know of the death within a few days (you have to do this by law). And get an accountant on board sooner rather than later to start working on the final tax return.
Savings: Countless headaches and maybe some penalties as well
Find missing accountsSometimes you may think there is money you're just not finding. Look at checkbook registers, bank and investment statements, and past tax returns for clues to where accounts and assets may be lurking. If you still believe there is money unturned, you can go through your state comptrollers office. That's where money from inactive bank and brokerage accounts eventually ends up. You can also try Web sites that work as intermediaries, like missingmoney.com.
The average amounts of unclaimed property are done by state. Here are a couple average claim amounts:
Maine: $684; Louisiana: $200 -$300; New York: 53 percent of claims are worth $100 or less, 36% are worth $50 or less; California: 239,000 accounts returned in 2005, average amount was nearly $1,000.
Potential savings: $1,000 (California)
Put a one-year freeze on inheritanceUnfortunately, people often do the wrong things — things they regret — when they spend or invest an inheritance too soon after receiving it. (One study showed that 40 percent of people decide what to do with the money within a WEEK of receiving it!) There's a lot of guilt tied up in this money, so you're better off simply stashing it in a money market account for 6 to 12 months while you think about what your long-term goals are and consult a financial adviser if necessary. The average inheritance today is about $29,000. Stash it in a money market account earning 4.5 percent and a year later you'll have $30,305.
With reporting by Arielle McGowen.
Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .