summer vacation cruiseAlthough it can be difficult to look into the distant future, if you want to go on vacation next summer, there is no better time than now to start the planning and saving process.

However, there is a big difference between saying you are going to save money and actually doing it. Here are several tips to follow as you begin to save today for next year’s vacation:

1. Set a Travel Date
It is important to know how many months you have to save. With a set date in mind, you may find it simpler to set a goal based on the trip you are hoping to take.

Let’s say you have 12 months to save $5,000. These are round numbers that are easy to work toward. This means you need to save roughly $416 per month to reach your goal. And the more time you give yourself for saving, the less money you need to put away each month.

2. Make Sacrifices
Taking a vacation is not nearly as affordable as it once was. While some trips are more affordable than others (such as destinations within driving distance), many people are attracted to faraway places that require a lot of money.

You may have to make sacrifices for an extended period of time if you plan on being able to afford your dream vacation. For example, you could eliminate eating out from your budget. You may find that this frees up a couple hundred dollars per month, or several thousand over the course of a year.

When you cut something out of your budget, make sure you take that money and stock it away in your vacation fund. This way you will have access to it when you need it.

3. Setup a Separate Vacation Savings Account
By setting up a separate vacation savings account, you can see exactly how much you have saved and how much more you need in order to reach your goal. Furthermore, you never have to worry about the money getting mixed with funds that you need for other expenses in your life.

Anytime I am saving for something, such as a vacation, I prefer to use an online account. While the money is still liquid, it is more difficult to access since I don’t have a debit card, and it takes several business days for a bank transfer to go through.

Final Thoughts
Taking a spontaneous trip can be a lot of fun – however, this may not be the best idea in terms of your personal finances. Do yourself a favor and begin saving for your next vacation as far in advance as possible. Not only will this put you in a better financial position, but it will help build anticipation towards your trip.

What other tips can you offer to help save money for vacation?

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entrepreneur leapIf you’re currently running a side business from home and are trying to decide whether you can make the leap into full-time small business ownership, this decision can be challenging. Jumping too soon could result in not being able to pay your bills. On the other hand, deciding too late in the game can result in missed opportunities. It is a very fine line; however, by objectively reviewing your venture’s current profitability and predicting its growth, you can make the switch without too many financial hang-ups.

1. Evaluate Performance at Your Day Job
Once my side venture expanded, I found that my performance at my day job suffered. This is a definite sign that it might be time to make the switch. You’re not doing yourself or your employer any favors by not producing at your day job.

2. Evaluate Performance of Your Venture
If you’re missing deadlines and upsetting customers, you could inflict long-term damage to your business. With my situation, I simply had to quit my day job in order to keep up with my expanding venture. New start-up businesses are fragile entities, and should be treated as such. Letting go of your day job will give you the time you need to effectively manage, market, and expand your business.

3. Create a Detailed and Specific Budget
Next, you’re going to want to seriously examine your monthly spending habits. List the revenues of your side business and compare it to your monthly expenses. It’s going to be difficult in the beginning, no doubt, but if you eliminate all unnecessary purchases in your life and focus on saving, you should be able to keep your spending below your income.

4. Manage Your Benefits
You’ll need to be certain that health insurance benefits remain intact for yourself and any dependents. You can choose a high deductible health insurance plan and couple it with a health savings account (HSA) in which your money will grow tax-free. To keep your retirement savings on track, roll over your old 401k plan into an IRA, and set up an individual 401k for yourself.

5. Contingency Plan
The statistics vary, but the most conservative estimates state that 3 out of every 10 businesses will fail within the first two years. While you certainly don’t want to focus on failure when you first set out, you should ask yourself,  do you have a plan B?

There’s a certain amount of risk involved regarding any small business venture, and you should always be prepared if your idea doesn’t work out. If your business stopped producing revenue tomorrow, do you have any idea what you would do?

While no one can predict the future, there are a few things you can do to protect yourself. Always leave on good terms with your current employer, as you never know when you might need them again. Also, keep in touch with your professional contacts and acquaintances, and inquire as to job openings or opportunities they may know of. If your business just doesn’t pan out, you will likely want to be able to find work as quickly as possible, so it’s crucial to maintain friendly professional relationships.

Final Thoughts

Once you’ve made the jump to full-time self employment, it’s time to hone in on your daily spending habits. Until your venture generates decent revenues, saving money will be key. Objectively identify your “wants” versus your “needs,” and eliminate as many “wants” as you can. For instance, purchases including lottery tickets, snacks, coffee, and bottled water are unnecessary, and add up over time. Identify ways to eliminate such expenses, or find ways to get what you need for less.

When do you think is the right time to switch to full-time small business ownership?

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tax professional coupleNow that your 2010 tax return is complete, you can take a break from all the stress – or can you? In the case of taxes, out of sight, out of mind is not a good strategy.  Although your 2011 tax return is not due for another year, there is no better time than now to start the preparation process.

If you work with a tax professional, here are a few questions you should ask now to ensure a better experience next year.

1. What can I do to avoid owing money to the government?
This is a question you must ask if you owed money to the IRS along with your 2010 return. There is no reason to continually come up short and get hit with a bill every tax season (or a tax penalty if you owed a lot this year).

If you owed money, you may have claimed too many allowances. In this case, you need to make an adjustment on your W-4 form. Remember, even though you are entitled to a certain number of allowances, you are not required to take them. Your tax professional can offer advice on changing your allowances and taking advantage of other tax saving measures.

By letting the government withhold more money, you decrease you chance of owing money, while increasing your odds of getting a refund with your final return. Keep in mind, however, when more money is withheld for taxes, you’ll receive less in your paycheck.

2. How can I find additional deductions and credits to increase my chance of receiving a refund?
Believe it or not, many people never take advantage of deductions and credits. Instead, they rely on the standard deduction because it simplifies the filing process.

Before you assume that the standard deduction will be right for you once again, ask your tax professional for advice. You may find that you will be better off taking several deductions rather than relying on the old standard.

On the other hand, credits are a different thing entirely.  Since these must be taken advantage of throughout the year, it is extremely important to ask your tax professional for a list of available credits for 2011. Once you have that list, you can figure out which ones will work for you over the course of the next year.

3. How much do I need to pay quarterly to avoid an underpayment penalty and owing money next year?
If you are self-employed, you are responsible for paying quarterly estimated taxes to the IRS, as well as your state and local agencies.

While the process of paying quarterly taxes is not overly complicated, it can be difficult to make an accurate payment. This is particularly true if your income changes from month to month.

Ask your tax professional to prepare “quarterly payment coupons” based on your past year’s income. At the very least, this will give you an idea of how much you have to pay if your income remains in a similar range.

4. Did you see anything in this year’s return that I could do better next year?
Although your tax professional puts a lot of time and effort into your return, personalized advice isn’t automatically part of the deal. However, if you ask for it, most will be happy to oblige.

There is nothing wrong with asking your tax professional for advice. Ask if there is anything anything you can do better next year. Did you make any glaring mistakes that could have been avoided?

You may be surprised at how much information you can get when you open up and ask for help.

5. My filing status will change – what should I do?
If you know your filing status will change this year,  it is essential that you get advice from your tax professional.

I found this out the hard way. When I got married in 2010, I failed to change my status from single to married. As a result, we ended up paying $5,000 more than we should have during the 2010 tax year. Sure, we were able to file an amendment and get a refund, but we should have avoided the issue from the very beginning.

Final Word

Even if your tax situation stays the same from year to year, the IRS makes changes that will affect you. Your tax professional is a great resource who can assist with far more than just filing your final return.  Don’t hesitate to ask questions and get as much help as you can throughout the year.

By asking the five questions above you can begin to organize and prepare for your 2011 tax return. This may sound like a lot of work right now, but you will be glad when April 2012 comes around.

What questions do you have after filing this year? Please share in the comments below.

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What I Learned From My Free Consumer Action Handbook

November 10, 2009

A few weeks ago, I got my consumer action handbook free of charge courtesy of our friendly neighborhood U.S. Government. After it sat on my desk for a few days, I decided to see what it had to offer. I did not read it completely in depth, but I can tell you that it is […]

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