Wallet Hacks

A last minute money move you won’t see anywhere else

When this post first goes live, it'll be December 28th, 2015.

There are just a handful of days before the ball drops in Times Square and we usher in the new year.

I want to share one last minute money move that I promise you won't read or hear anywhere else.

Stop trying to optimize everything, slow down, and enjoy the rest of the year.

You don't need to get every last deduction or make every last “move.”

Slow down, enjoy the end of the year, and spend some time with friends and family.

I feel comfortable saying this because many of those last minute moves, they won't make a huge difference and can come with an invisible cost – stress.

One of the most popular last minute tax move suggestion is to prepay your mortgage. Make January's payment in December so you can claim the mortgage interest tax deduction this year.

It sounds great, right? Except you did it last year too.

In theory, you are prepaying your mortgage but you still end up with 12 payments this year because you already accelerated January's payment. Your prepayment benefited you the first year you did it, by giving you an extra payment that year. In subsequent years, it only gets you back to 12 payments a year. In theory, you could alternate years giving you 13 payments one year, 11 the next, 13 the following, etc. but that defeats the purpose of accelerating the deduction.

This also doesn't take into account the new limits on state, local and property tax deductions!

What's the stress involved? You need to make sure the bank issues you a billing statement so there's something you can pay… otherwise the payment could go entirely towards the principal. That won't give you the tax benefit you seek.

What if you make the payment, the bank doesn't recognize it until 2016, and so your Form 1098 (which reports interest) is inaccurate. You need to call the bank to get the corrected one issued. Those take time.

And what financial benefit do you get out of it? You get your mortgage interest deducted from your income, lowering your taxable income, and now you pay some percentage less in taxes. It's awesome to pay less, I'm not disputing that, but the benefit is relatively small.

If you pay $1,000 in mortgage interest each month and are in the 25% tax bracket, that's $250. Not bad! Except for that deduction, you must prepay your mortgage every year or you give the deduction back. I don't like saving a little and being on the hook for a lot of work forever.

What's better than doing that? Skip the course corrections, these last minute things, and adjust your system to capture savings the entire year.

Use the Upgrade and Save Strategy where one move can result in downstream savings. Or do things like downgrade or cancel your cable, where one phone call results in savings each month. Don't look for these little last minute things because if it was such a big benefit, you wouldn't have seen it in the last minute, right?

Plus, life is way too short to be on the phone with your bank for no good reason.

Have fun.

I hope you have a good rest of the year and see you in 2016!