savings

12 smart savings tips for 2012

Tip 9Sign up for a flexible spending account

Almost everyone incurs costs for medicine, prescriptions and copayments. Perhaps you also have dependent-care expenses while you're working or pay commuting costs to get to work. If your employer offers a flexible spending account as part of your benefits, consider signing up.

A flexible spending account, or FSA, allows you to pay for medical, dependent-care or transportation costs with pretax dollars set aside with every paycheck. By paying with pretax dollars instead of after-tax dollars, you're essentially getting a discount on all these expenses you regularly incur. How big a discount? It depends on your marginal tax bracket. But those in the 15 percent bracket are saving 15 percent by paying with pretax money instead of money that already has been taxed. Contact your employee benefits department to get specific information.

Tip 10Consider a rewards credit card

Do you always pay your credit card balance in full? If so, you're the ideal candidate for a rewards credit card. With a rewards credit card, you are compensated in the form of cash back, airline miles or one of many other methods for the everyday purchases you make.

Identify what type of reward is most appealing to you, and compare card offers based on what percentage of your purchases are paid out in rewards. A 1 percent reward ratio is the most common, but many cards exist that have higher payouts for certain categories of spending or above a certain spending threshold.

In fact, Bankrate.com's 2011 survey of cash-back credit cards found that 22 percent have payouts of more than than 1 percent on all spending and 28 percent offered higher payouts in certain categories of spending, so it's important to shop around. Finding the card that best fits your spending pattern can put hundreds of dollars per year in your pocket for expenses you'd incur anyway. The keys to success are always paying the balance in full and resisting the urge to overspend just for the sake of the reward. Check out Bankrate.com's search engine to find the best rewards credit card for you.

Tip 11Adjust your tax withholding

If you either receive a big tax refund or get stuck with a large tax bill, adjusting your paycheck withholding is an appropriate move. While many people look at a tax refund as "found money," the reality is that it is your money, and a refund indicates you've made an interest-free loan to Uncle Sam for the preceding year. Give yourself a raise by having less withheld from each paycheck, and you can enjoy that money throughout the year.

If the shoe is on the other foot and you ended up making a big payment at tax time, having additional money withheld from each paycheck can keep that from happening again next year.

The IRS has a tax withholding calculator you can use to figure the optimal paycheck withholding. Then file a new W-4 with your employer's payroll department to put the adjusted withholding into effect.

Tip 10Refinance your mortgage

How is this considered a savings tip? With wages at a standstill for many households, mortgage refinancing can create some much-needed breathing room in the household budget. Mortgage rates are at record lows, and with expanded eligibility for the Home Affordable Refinancing Program, many deeply upside-down borrowers will now be eligible to refinance their mortgages at more attractive interest rates, cutting monthly payments by hundreds of dollars per month. Check out the free mortgage rate search engine at Bankrate.com.

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