In the movie, “It’s a Wonderful Life,” the angel Clarence tells George Bailey they don’t use money in heaven. George replies, “Comes in pretty handy down here, Bub.”
Money does come in handy down here, so you don’t want to let it slip through your fingers. To be a good steward, you need to be on the lookout for ways to save money so you can hang onto more of it. Not for the love of money, but to have more to use for God’s purposes and His glory. Here are three ways you may be losing money.
1. Not contributing enough to your 401k to get the maximum matching contribution.
The first is not contributing enough to your 401k to get the maximum matching contribution, if your employer offers one. That’s just free money that you’re throwing away.
Of course, your employer may not offer a 401k at all. What then? You can’t just say, “Oh well I’ll save for retirement at my next job. Again, because of compound earnings, time really is money. Every year you don’t set up a traditional or Roth IRA, money is slipping through your fingers.
A Roth has several key benefits, starting with tax free retirement income. That’s not the case with a traditional IRA, where contributions are “pre-tax.” You deduct them from adjusted gross income on your tax return, but you have to pay income tax on your withdrawals when you retire.
A Roth doesn’t work that way. Your contributions are with “after-tax” dollars. True, you don’t get the tax benefit now, but it’s worth it because your withdrawals during retirement are 100% tax free. The IRS figures it already got what’s coming to it.
A Roth is especially good if you project your tax rate will be higher in retirement than it is now. Generally, that means the longer the time until you retire, the better a Roth works for you.
Also, unlike a traditional IRA or 401k, you won’t have required minimum distributions someday. Also, almost anyone can contribute to a Roth IRA and if you bequeath one to your heirs, they won’t have to pay taxes on withdrawals, either.
2. Not taking full advantage of a flexible spending account.
A second way you may be losing money is by not taking full advantage of a flexible spending account, or FSA, if your employer offers one. A lot of folks shy away from them because contributions not spent during the year are lost, but with a little planning and calculation, you can set your contributions pretty close to what you’ll spend on qualified items during the year.
There are actually two versions of the FSA. One is for medical expenses and the other for dependent care, which covers child care, care for a elderly adult, in-home dependent care, before and after school care and nursery school.
Both types must be offered by your employer— you can’t set these up on your own. You also have to sign up for and contribute to each separately. Your HR department can talk you through the process. Bottom line, an FSA lets you pay for qualified expenses with pre-tax dollars, saving you a lot of cash.
2. Lending it to Uncle Sam tax-free.
A third way to lose money is by lending it to Uncle Sam tax-free. That means having too much withheld from your paycheck for taxes. The average refund is around $3,000. That’s money you could be using to pay down debt or increase your savings.
There are plenty of tax withholding calculators online to help you fill out a new W-4 withholding form. The goal is to have the tax withheld from your paycheck come as close as possible to what you’ll have to pay in taxes.
There are three ways to avoid losing money. We hope you’ll take advantage of them. We also hope you’ll make God part of the process of becoming a better steward.
God wants to be a part of your life, and that certainly includes how you handle money. Whenever you have doubts about a financial decision, you can go to the Lord in prayer. James 1:5 tells us, “If any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him.”