|Given the recent turmoil in the financial markets and the prospect of a continuing economic downturn, 2009 may be the year you finally make good on your resolve to start an emergency fund, pay off credit-card debt or beef up your retirement kitty. Our guidelines on cutting your expenses and saving on taxes are guaranteed to put money in your pocket -- and your savings accounts.
1. Get your spending under control by using a free online budgeting Web site, such as Mint.com. This secure site tracks your checking, credit-card and investment accounts and offers money-saving tips, such as where you can cut costs or get a better rate on your credit card. Other free sites, including Wesabe and Geezeo, offer similar budgeting tools, but focus more on their online communities where users share strategies.(Also see: Best Online Budgeting Sites.)
With the meat and potatoes of your finances laid out, it will be easier to see where you can trim the fat. For example, assuming that you and your significant other pay the average $33 per person for a restaurant meal (according to a recent Zagat survey) and $7 per ticket for a movie, one fewer date night a month will save you a total of $960 per year.
2. Set up a flexible spending account to help pay for medical expenses. If your employer offers this benefit, you can stash pretax dollars in the account and use the money to pay for out-of-pocket bills, including physician co-payments, prescription drugs, eyeglasses and braces for the kids' teeth. You can even spend the money on over-the-counter medications, such as antacids and pain relievers.
A flex account can save you hundreds of dollars in federal, Social Security and, in most states, state income taxes. For example, if you're in the 25% tax bracket and you put $1,450 in your account -- the average contribution for 2007 -- you'd save $546 for the year, assuming a 5% state income tax and 7.65% for the FICA tax. Plus, you can tap the entire amount at any time, even if you've contributed for only a couple of months. See our Flex Spending calculator to figure how much money you should include in a flex account.
Under the use-it-or-lose-it rule, you could forfeit any money left in the account at the end of 2009. But many companies now offer a grace period until March 15 of the following year. In fact, if you have money left over from 2008, treat it as a bonus to help pay for a major expenditure in early 2009.
3. File a new Form W-4. If you got a tax refund for 2008, adjusting your withholding will fatten your paycheck for 2009. With an average refund of about $2,400, you could be entitled to three extra exemptions. In the 25% tax bracket, that could boost your take-home pay by $2,625 per year. To figure your own raise, use our withholding calculator.
4. Raise your insurance deductibles. Increasing the deductible on your car insurance from $250 to $1,000 can save up to 15% on your premiums -- or about $125 per year on an average premium of $829. Upping the deductible on your homeowners policy can slice your rate by about 25%, or $191 on an average premium of $764.
5. Cut the cost of credit. If you tend to carry a monthly credit-card balance, go with a low-interest-rate card, such as Wells Fargo's Prime Rate card, with a 5% interest rate and $19 annual fee. For gasoline or travel perks, try the BP Visa card or Simmons First Visa Platinum Travel Rewards card.
If you'd rather pocket a cash rebate, consider the American Express Blue Cash card. You'll get a 1% rebate for gas, groceries and drugstore purchases, and you'll get 0.5% back on everything else. Big spenders can bump up those rewards to 5% and 1.5%, respectively, after dropping $6,500 for the year. Charging $15,000 worth of everyday purchases would save you $490.
6. Open an online savings account, such as the one at www.fnbodirect.com, which was recently paying 3.25%, or about $100 a year on a $3,000 deposit. You can open the account with just $1, and there are no monthly fees or minimum-balance requirements. To avoid the temptation to spend all the money that's now lining your pockets thanks to our first five tips, set up an automatic monthly transfer from your checking account or arrange to have part of your paycheck deposited directly into your new rainy-day fund.
7. Bump up your 401(k) contributions. Already have an emergency stash? With stocks on sale, now is a great time to build -- or rebuild -- your retirement kitty. For 2009, the contribution limit for 401(k) accounts rises to $16,500, and you can add another $5,500 if you'll be 50 or older by the end of the year. Contributions aren't subject to federal or state taxes, so loading up on the full $16,500 would save you $4,950 in taxes for the year, assuming a 25% federal tax bracket and a 5% state income tax.
Can't afford the maximum contribution or want to use part of your savings for something else? Try to kick in at least enough to capture any employer match.