SPENDING WISELY
BEST VALUES IN CARS, TECH, TRAVEL & ENTERTAINMENT
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Suddenly, saving is sexy and budgeting is back in vogue. All it took was gas at $4 per gallon and a 30% increase in the price of eggs, and now even families who were accustomed to spending freely (or using their credit cards) are trying to economize.
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Prices have been rising right along with summer temperatures. At an annualized clip of 3.9%, inflation is running ahead of its long-term average of 3.4%. Kiplingers is looking for prices to rise about 4% over the coming year.
That's still a far cry from 30 years ago, when the rate of inflation hit 11.3% in 1979 and peaked at 13.5% in 1980. But it does mask even higher increases for things you buy every day. For example, the U.S. Department of Agriculture predicts that food prices will rise 5.5% in 2008, with double-digit percentage increases for bread, eggs and milk. And no one who drives will be surprised to learn that the price of gasoline has soared by more than 30% over the past year.
High prices mean high anxiety for many consumers. In survey after survey, Americans say they are trying to spend smarter this year and sock away more money. Rather than spend their economic-stimulus checks, many people say they'll use the money to beef up savings accounts or pay off debt (or they'll earmark the cash for gas and other necessities).
Cutting back can be especially challenging for couples like Ron and Jenn Newman of Lindenhurst, N.Y., who face the additional costs of a new baby. Their daughter, Amanda, was born last October. Or like Marc and Jennifer Martinez of San Ramon, Cal. Marc, a digital-video editor, left his full-time job at a local television station last February to go solo. Or like Kurt Koppensteiner and his wife, Kristina Huddleston, of Louisville, Ky. Kurt was laid off from his banking job in January. Now, says Kristina, a lawyer, "I really watch the prices at the grocery store. I can tell you every time bananas go up 10 cents."
Minding their outlays for food and gas saves Kristina and Kurt more than $160 per month. That's $1,920 in annual savings -- more than this summer's federal tax-rebate check for most families. All three families have come up with creative ways to cut back without feeling deprived -- and they've even found money to put aside for college, retirement and future vacations.
Double Whammy
Children can be a real budget buster. For the Newmans, Amanda's birth and day-care costs, coupled with higher prices for food and gas, felt like "a double whammy," says Jenn.
But kids are also a source of tax breaks that let you pocket more money. For example, when Amanda was born, the Newmans became eligible for an additional withholding exemption, putting $3,500 of their income off-limits to Uncle Sam. In the 25% tax bracket, an extra exemption can boost take-home pay by $875 per year. (Use our easy Withholding Calculator to figure out your tax exemptions.
In addition, when it comes time to file their 2008 income taxes next year, the Newmans can claim a child tax credit worth $1,000 available for children under 17. That would reduce their tax bill dollar for dollar.
The Newmans get help with day-care expenses by taking advantage of the dependent-care spending account offered by Ron's employer, Eclipsys, where he works as an IT project manager. They can set aside up to $5,000 a year in pretax dollars to pay for day-care costs.
If you don't have access to a dependent-care account, you can use the dependent-care credit. It allows most working families to take a tax credit of up to $600 for one child, or $1,200 for two or more children, for qualified day-care expenses.
The Martinezes have come up with an even more economical solution for child-care expenses: They stagger their work schedules so they can care for their two children, Matthew, 8, and Mallory, 3. Marc, 48, is able to complete the bulk of his work at night, so he can mind the kids on weekdays while Jennifer works as a marketing representative. Then she takes over as primary parent in the evenings, giving Marc time to work.
POSTED BY: mamawoman (July 11, 2008 02:25 PM)
Am I supposed to feel bad for a couple with one spouse not working yet won't save money to take care and raise their own child instead of dumping it in daycare?...
POSTED BY: John (July 11, 2008 03:58 PM)
...What's wrong with this nation is we have become a nation of whiney over-consuming, non-producing, want everything cheap or free, people. We don't appreciate the luxuries we have, like indoor plumbing, electricity, transportation, and medical care, and we have forgotten what it means to be responsible for ourselves and our families and to provide from the ground and lakes for our dinner tables. Don't look for it to get any better unless you are willing to adapt and evolve. Humans have come a long way by doing that, but I sense American's don't know what it means anymore.
To Dody: I agree, I bet inflation is actually higher now than the 1980's. I was in my early teens then, and can remember losing the family house and pretty much everything we had up in the rust belt when all the factories started closing, interest rates were sky-high, and so was unemployment. The times were worse then, but the inflation, I would bet, was not. Don't see how it could be with the fuel and food increases we have had.
Aleck: You are reading on Kiplinger's Finance site, who do you think the article is written for...a homeless person?
POSTED BY: Mark (July 13, 2008 03:09 PM)
Well, I have to agree with the earlier post....We are a country that wants things now and will spend for it. Thats why we have the drug problem we have the immigration problem we have...Add to that the fraud and the inconsistencies from state to state to better dispene credit and check people who can really afford to pay for a house. We don't even respect the stuff we have, like good outside lightning in most streets, streets without potholes, police that if they go stray, the law goes after them. Heck we can even go to a movie theater and sit anywhere we like. Take for example Colombia. Their, you have to pay for any parking you do, in any commercie center, when you go to the movies there, you sit what you pay, and they tell you where to sit. Americans are going down hill fast, and most nations and people will take potshots at it anytime they want.
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