Prepare to Plan Your Taxes or Plan to Pay More

Hey Paul: What is the difference between “tax planning” and “tax preparation”? Are they the same thing?

These two terms are closely related and I suppose could mean the same thing to some people. For those who are procrastinating doing their taxes until April 18th could claim to be in the planning stage – collecting W2’s, charitable gift receipts, etc. But tax professionals would refer to everything you do to get your 1040 done as “tax preparation.”

Tax Planning typically refers to the development of tax saving strategies that precede the tax preparation stage. Tax planning takes place in the calendar year before taxes are settled the following mid-April — after December 31st there isn’t much you can do about last year’s finances.

The following is a list of “tax strategies” you can think about implementing this year – or perhaps serendipitously you can use for 2015 taxes if your story fits.

  • Contribute to qualified retirement accounts: By making an IRA contribution or other tax-deferred income such as to a 401(k) during the year you will delay taxing that income. For the roughly half of the U.S. households who pay no Federal income tax, contributing to a Roth IRA will result in little or no additional Federal income tax now and tax-free withdrawals in the future.
  • Cover health care expenses pre-tax: For those with employer-provided health insurance, you can pay no Federal, state, or payroll taxes on your share of the premium. Flexible Spending Accounts (FSA) have similar tax benefits and cover out-of-pocket medical expenses including dental and vision. Starting last year FSA plans have an option to rollover up to $500 of unused funds; in the past it was a use-it-or-lose-it fund. Health Savings Accounts (HSA) need to be coupled with high-deductible health insurance and are essentially a bigger version of an FSA.
  • Itemize rather than take the standard deduction: The major categories are charitable giving, taxes (property, state income or sales taxes), and mortgage interest expense. For single and married households the standard deductions are $6300 and $12,600, respectively. These are high hurdles to cross if you don’t have a mortgage. One strategy is to lump deductions into a specific year by making early property tax payments or high charitable giving.
  • Start a side business: Small business owners love their write-offs – home office space, cell phone, business related mileage, etc. Landlords are infamous for having accounting losses due to depreciation of the home while actually having a fairly profitable rental business. Put your child to work as part of the family business and they will pay no taxes on the first $6300 of their income — more importantly you turn an allowance into an earning.
  • Give money away: Giving is not only good for the spirit but also to avoid taxes. If the gift is to a qualified non-profit than it may be deductible as an itemization. Another strategy is to gift (up to $14K!) to anyone. Give away assets that have losses or small gains since you acquired them and try to leave highly appreciated assets as part of your estate when they will escape capital gains taxation. To whom should you give? One idea is to set up a Roth IRA or 529 College Savings plan for a child or grandchild. These investments grow tax-free and withdraws are tax free if used for retirement or college. You can also give directly (up to $100K!) from your tax-deferred retirement account to a charity – this escapes taxation entirely on that income.

For the rich-and-famous tricks such as characterizing business income as a capital gain that is taxed much lighter than regular income and avoids payroll taxes. This is one way Wall Street hedge fund managers and CEO’s pay less tax than their secretary. If your patriotic ties aren’t binding you could move to a foreign country – or at least shift your assets to the Cayman Islands. At some point we cross the line from tax avoidance to tax evasion!

If you missed the opportunity to purposely reorder your 2015 finances to qualify for lower taxes there still exists the opportunity to make the most of what naturally occurred last year. Here are the things you can do to be a smart tax filer:

  • File your taxes – it’s the law and you may actually get 1000’s of dollars from the IRS. In my estimation there is a much more money left on the table by those who don’t file or miss obvious tax savings compared to those who don’t file thinking they are beating the system.
  • Use low-cost tax software, free tax prep such as offered by the AARP (Mon. and Wed. mornings at the Jessamine Public Library) or a tax professional. I would highly advise against the old-school method of pencil, calculator and tax instruction booklets!
  • Take the tax credits that you qualify for – EITC, child tax credit, various college education credits, retirement contribution credits and many other tax savings are potentially there for you. Tax software or a qualified preparer will (almost) certainly catch all of these as long as they know your story.
  • Contribute up to $5500 (or $6500 if over 50) to an IRA. This will delay when the income is taxed which may be lower in retirement than in your working years. You can make an IRA contribution up to the tax deadline and have it count for 2015.

So by spending a few hours a year preparing taxes you can save a few hundred dollars in fees; By spending a few a few hours in tax planning you can potentially save much more by choosing the favorable actions and timing to minimize your tax liability.

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups. Contact him at Paul.Hamilton@Asbury.edu or www.USA-Economics.com

 

When should you start Social Security?

Paul Hamilton | More Than Money | Posted: Friday, February 19, 2016 8:01 pm

Hey Paul,

When should we begin our Social Security benefits? We are a middle-income couple with about $300K in our 401(k) and IRA. We are in reasonably good health, own our home and don’t anticipate any major changes in lifestyle as we enter our retirement years.

Jack and Diane

The timing of Social Security benefits may very well be the most important financial decision you’ll make as you enter retirement. In particular, as a middle-income couple you will have the full slate of potential start ages available. In contrast, the couple that enters retirement with meager savings has no choice but to start Social Security benefits as soon as possible. Alternatively, the wealthy couple can likely opt for the longevity strategy typically involving the high-earner waiting until 70 to start benefits while the lower earner starts spousal benefits at age 66.

The spousal age difference, relative earnings and several other characteristics will matter in making the Social Security decision. I will assume that the Jack is a couple years older than Diane and that he was the sole breadwinner — a situation that is quickly evaporating in America. A typical Social Security benefit for someone who made, in today’s dollars, annual incomes in the $40K’s would be about $1,500 a month — $18,000 annually. All future benefit amounts will maintain their buying power with annual cost-of-living-adjustments.

A quick overview of your benefit options is as follows:

• As all benefits will be based on Jack’s earnings you can start your benefit as early as age 62 and take a 25 percent hit, or wait until age 70 and enjoy a 32 percent permanent bonus on your benefit.

• Diane will only have a spousal benefit which is half of Jack’s age 66 benefit — $9,000. This is reduced if she starts the spousal benefits early with an age 62 reduction of 30 percent.

Three potential strategies

The Early Money Grab Strategy. Jack starts his own benefit at age 62 with a 25 percent permanent reduction, bringing his benefits to $13,500. Diane also starts benefits at age 62 and her spousal benefit, which would have been $9,000 at age 66 but is reduced to 70 percent of the full amount by taking it four years early, is down to $5,600. The total benefit is $19,100 for the two of you. If Diane predeceases Jack then he will just keep his $13,500 own benefit. If Jack predeceases Diane then her widow benefit will be 82.5 percent of his full retirement age benefit — $14,850.

The Patience Wins the Game Strategy. This may be an unrealistic plan in that you may exhaust your entire life savings before Social Security kicks in. The attractiveness of this strategy is that it provides the largest lifetime benefits if you both or even just Diane lives into her 90s. The key steps are that Jack, as the high-earner and older spouse, will wait until age 70 to start his own benefits. This will increase his benefits by 32 percent to $23,760. What you’ve done is locked in the maximum, not only for yourself while alive, but also for your wife. Diane’s key step is to wait to age 66, when she can start her full spousal benefit of $9,000. The spousal benefit doesn’t get any larger after full retirement age so no use in delaying it any further.

The Avoid Extremes (a.k.a. Smart) Strategy. Let me suggest that you think about a compromise solution that combines some early cash flows with the longevity insurance of waiting. If Jack waits until age 66, he’ll get the full benefit of $18,000. Diane can start her full spousal benefit of $9,000 at age 66. So, combined you’ll have $27,000 from social security. When one of you passes, the surviving spouse still receives $18,000 for life.

Social Security and retirement savings

You can reasonably withdraw $8,500 annually from $150K of retirement funds and expect it to last until age 90. Combining this with Social Security benefits brings gross income up to $35,500 — not much lower then your working days earnings. I’d call that a comfortable retirement!

Social Security benefits won’t be taxed as long as your taxable withdrawals from your 401(k) and IRA are not more than $18,500 annually. As a couple, you’ll need to fully finance the first four years out of your retirement savings — this could burn through half of your $300K. But $150K in retirement savings with no debt and $27K of untaxed Social Security perpetuates a middle-income lifestyle for many retirement years.

I have only discussed one specific case here. In practice everyone has a unique life story with various marital histories, earning levels and accumulation of retirement assets. As a service to the readers of this column I have provided a free social security planning page on my website, USA-Economics.com. This planning app will allow you to better understand your own Social Security benefits similar to what I have described for Jack and Diane. No one should have to make the biggest retirement decision on his or her own.

Social Security isn’t just for seniors

Paul Hamilton | More Than Money | Posted: Thursday, February 11, 2016 6:59 pm

Hey Paul,

My parents are close to retirement and they each have a Social Security statement that gives their retirement benefits at different starting ages and shows their lifetime earnings. I don’t recall receiving anything like that. I am not thinking too much about retirement yet but should I have received a Social Security statement?

Leftout by SSA

The SSA stopped sending out annual reports to all workers about five years ago as a cost-saving measure. They still send a statement when a worker reaches 60 as that is when Social Security benefits become most relevant. However, Social Security isn’t just for old folks — it provides life and disability insurance to workers of all ages.

Fortunately, you can easily access your Social Security information online. Go to SSA.gov/MyAccount to set up access. As long as you know your name and Social Security number and can recall some personal trivia such as old addresses, lending banks, models of cars then you’ll be able to see some very interesting and important benefit information.

The chart accompanying this column shows a typical statement for a middle-class worker. Let’s suppose your report is identical. The report includes estimates of what your monthly benefit will be if you retire as early as possible at age 62, at your full retirement age of 67, and the latest age of 70 to begin benefits. This worker earned $47,423 last year but his retirement benefit at age 67 is predicted to be $1,680 monthly — $20,160 annually in today’s dollars. The projected benefits are based on your earnings history and then assumes you earn your past year’s income up to the start of your Social Security benefits. A lot can happen both to your actual earnings, as well as Social Security policy, in the few decades before you retire so don’t put too much weight on these retirement benefit projections.

More pertinent to your situation are the life and disability benefits. The core benefits are all roughly the same whether it turns out to be retirement, survivor or disability benefits — $1,680 if you make it to 67, $1,569 if your spouse makes it to 67 without you, and $1,527 if you become disabled this year. The SSA doesn’t track your family structure so the report will estimate family benefits under the assumption that you have a spouse and minor children.

I don’t like to bring up to people the possibility of their early departure from this world, but it may be of some comfort that your spouse could receive $1,176 in mother benefits while she has one or more children under 16. Additionally each child under 18 (or 19 and still in high school) can receive $1,176 — this is 75 percent of the full widow benefit of $1,569. Your family maximum benefit is $2,908 so if you have a surviving spouse and two minor children then each benefit will be reduced to remain at the benefit cap.

So, the next question to ask yourself is whether $2,908 along with your wife’s earnings, assets and life insurance proceeds are enough to sustain her while the kids are still around. Once the kids age out of Social Security, she will not receive any benefits again until early widow benefits kick in at age 60 at the earliest. In this case she will only receive $1,122 –- 71.5 percent of the widow benefit of $1,569 if she had waited to start benefits at age 67. Of course, she may have her own Social Security benefits that are larger or remarry.

Enough about a world with you. The next scenario may be equally sobering: Your health deteriorates to the point where you “can no longer perform any substantial work.” Social Security disability is more restrictive than most private disability insurance. If you qualify as a disabled worker you are entitled to a benefit of $1,527. Your wife and any minor children are entitled to 50 percent of this amount but only up to a family maximum of at most 150 percent of your benefit. Thus the highest monthly disability check your family could receive is $2,290.

In summary, it is well worth obtaining and looking over your Social Security statement even at younger ages to see what level of life and disability insurance would be available.

Hey Paul,

My husband and I are both in our early 30’s with two children ages 5 and 8. I have worked part-time since our first child was born. My husband had worked in construction but for the last few years has worked at a factory. We are both relatively healthy as are our children. A friend mentioned they had bought disability insurance through an insurance agent. Should we have disability insurance?

Young and Invincible

The decision to purchase disability insurance is complicated by the unpredictable onset and different forms disability can take. Even at your peak health years there is the possibility an accident or chronic illness will limit your ability to work.

This reminds me of a story of a professor who apparently had a stroke while teaching class. A student quickly called 911 reporting that the prof was hunched over and mumbling incomprehensibly. The ambulance arrived but emergency personnel were not given a room number. The EMS team ended up taking out five other professors on gurneys before they got the right professor.

OK, I made up this story but the moral is that if your work requires your full mental or physical abilities then acquiring disability insurance should be given strong consideration.

The SSA reports that about 30 percent of workers qualify for Social Security benefits at some point in their working years. This is astonishing given that the SSA definition of disability includes “the inability to engage in any Substantial Gainful Activity,” which is any job with $1,130 in monthly earnings. So a middle-income teacher or high-income lawyers are not eligible for Social Security disability if they can perform a minimum-wage job.

Based on what you have told me, both you and your husband would likely be eligible for Social Security disability benefits if you meet certain criteria — have earned income at least half the time since age 21 and in five of the last ten years. Earning only $5,040 in the 2016 calendar year qualifies you for a full year of work credits.

The first thing to do is to check what level of Social Security disability you may be eligible for if you become disabled. Reliable estimates of this can be retrieved online from the SSA but need some clarifications. Importantly, Social Security disability covers only major disabilities where the worker can no longer “perform any substantial work;” this is in contrast to most private disability policies that cover “own occupation.” For example, if your husband could no longer do construction work but could still work at a minimum-wage job, then Social Security disability would not kick in.

Social Security disability essentially allows the worker to retire and provides a benefit comparable to if they had worked up to their retirement age. In addition, a spouse and minor children receive up to 50 percent of the worker’s benefit. However, the total family benefits are usually capped at 150 percent of the worker benefit. The average worker’s Social Security benefit is about 40 percent of their average earnings, so the family maximum benefit would only replace about 60 percent of the worker’s income. Where does the other 40 percent come from?

If there were a group disability plan through your husband’s work, I would give that strong consideration. For one thing, there is likely no medical exam required. Secondly, the benefits are tailored to the types of disability that commonly disrupt this type of work. Like any insurance it is not an investment — you are likely to not need the benefits, but if needed, the benefits are a lifesaver.

I would prioritize other items such as term life insurance and saving for retirement above the need for disability insurance. If your budget can accommodate a couple of hundred dollars each month to purchase private disability insurance to supplement Social Security disability benefits, then give it serious consideration. Not all of us are profs that can lecture incoherently until retirement.

Spousal benefits and the demise of social security

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Paul Hamilton | More Than Money | Posted: Thursday, February 4, 2016 1:38 pm

Hey Paul: I am a physician who will turn 66 this year. What’s the highest possible social-security benefit that I would receive based on high earnings? I was married to my first wife for 20 years and have been married to my second wife also for 20 years. How do their social-security claims change my benefit?

Good Doc

Assuming you earned over the social security earnings cap — $118,500 in 2016 — every year for the past 35 years, your full retirement benefit at age 66 would be about $2,663 monthly — $31,956 annually. Your spouse — and your ex-spouse since you were married for more than 10 years and assuming she is currently unmarried — would be eligible to receive an amount equivalent to 50 percent of your benefit. These spousal benefits are in addition to your benefit and don’t reduce it or each other’s potential spousal benefit.

If you delay the start of benefits to age 70 your benefits will be 32 percent higher — $3,515 monthly and $42,182 each year in today’s dollars. If you predecease either of your spouses they could switch from the spousal benefit to a survivor benefit equal to your own benefit. So, to your wives, you are annually worth $31,956 alive and $84,364 dead — be careful!

Hey Paul:

A coworker of mine just retired and, according to him, he is receiving his own benefit of $2,000 and his wife, who never was in the work force, is getting a spousal benefit of $1,000. I worked the same position with identical pay as my friend and my wife worked part-time earning about 30 percent of my salary. We looked up our potential benefits and were surprised to see that they were identical to our friends’ — my benefits at $2,000 and my wife’s benefits at $1,000 per month. Is this right?

Show Me the SS $

It depends on what you mean by “right.” For the lower-earner the SSA first calculates a worker’s own benefits based on their earning and then tops this off with a spousal benefit to bring the combined total up to 50 percent of the higher-earner’s benefit at age 66. For your friend’s wife she had no benefits of her own but received the full spousal benefit of $1,000. Your wife may have had her own benefit of roughly $700 but then an excess spousal benefit of $300 made her combined benefit $1000. So technically and in reality these are the right amounts.

Is it fair that your wife paid 6.2 percent of her wages toward social security and won’t receive any higher social security benefit than if she never worked? Many people would agree that seems unfair for the government to collect payroll taxes and not reciprocate with higher social security benefits. A countering question: Is it fair that a married couple can receive 150 percent of the benefits of a single person who has an identical earnings history? Tough call.

Hey Paul:

I met the love of my life at an AARP meeting. We are planning to tie the knot this year. How will marriage impact our social security benefits?

Mrs. Wonderful

Congratulations on your impending nuptials or as we say around here, getting hitched. Evidently the AARP informational events are doubling as excellent social mixers.

One near-term impact is that you will become eligible to draw spousal and survivor benefits on your new love. Spousal benefits become available after one year of marriage along with other stipulations, such as that you are 62 or older and your spouse has begun their own benefits.

Survivor benefits eligibility occurs after nine months of marriage — and regrettably the passing of your spouse. The surviving spouse must be 60 or older (or 50 or over and disabled) to begin survivor benefits. There could be additional survivor or retirement benefits if you have minor children.

If either you or Mr. Wonderful had a previous marriage then your new marriage will impact social security benefits based on those previous relationships. If you are divorced and remarry then you forfeit receiving spousal benefits based on your ex-spouse’s earnings. If you were widowed and remarry before age 60 you also forfeit survivor benefits from your deceased spouse’s earnings. If you remarry after 60 you maintain the survivor benefits.

Hopefully yours and any marriage won’t let social security be the deciding factor in whether to wed. However, some combinations of marrying a relatively low earner, being widowed and remarrying before age 60 will result in significant loss of social security benefits.

Hey Paul:

I am in my early 50’s and greatly looking forward to a comfortable retirement starting in a decade, partially financed by social security benefits. Do you think social security will be different by the time I am retired?

Counting the Days

Yes, likely very different and not in the direction you’ll like. Some policy changes are already set to happen such as upping you full retirement age from 66 to 67. This will increase the benefit reduction if you take benefits at the earliest age of 62 and diminish the benefits of waiting to age 70 to start benefits.

Recent legislative changes will also phase out strategies such as one spouse being able to take their spousal benefit at age 66 while the other spouse delays until age 70 to receive their maximum benefit. This is the so-called “file-and-suspend” strategy.

Let me suggest a more radical social security policy change related to my recent posts on spousal benefits. Currently a non-working spouse can receive up to 50 percent of their spouse’s full retirement age benefit. This is a benefit that my mom and many others currently enjoy as reward for “raising the kids.” But actually there doesn’t have to be any procreation or cohabitation — only a marriage license that is available for a nominal fee to any two adults in every county, with the possible exception of Rowan. Can an old geezer marry a single mom and upon his death provide survivor benefits to her and her kids? Can two people meet on social media, get married, never meet in person and then draw spousal or survivor benefits? Can a happily married couple get divorced, continue to live together and then simultaneously draw ex-spousal benefits? Yes. All these are entirely within the letter — but not the spirit — of social-security law.

I believe it is likely that we’ll see social security benefits reconfigured to be similar to many private pensions in that the wage earner can designate different payouts to fit their family situation. The highest payout would be based on only their own lifetime. A lower payout would occur if the payout continued over two lives with adjustments for the ages of the beneficiaries. This payout method would do away with arbitrary definitions of marriage and the 10-year marriage rule as well as first-dollar recognition of payroll taxes toward potential social security benefits.

In summary, I don’t think you need to worry about social security not being there at all for you in 15 years. But the benefit levels will certainly be mildly if not significantly reduced for people of your age and younger.

Dr. Paul Hamilton is an Economics Professor at Asbury University and a Certified Financial Planner. Questions you’d like to see answered in the column can be sent to paul.hamilton@asbury.edu. All reader-submitted questions answered in the column will be published anonymously and questions may be edited for clarity or generality.

Dr. Hamilton can provide free workshops for local churches, businesses or other groups. His website is usa-economics.com.

Be thoughtful with timing of Social Security retirement

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Paul Hamilton | More Than Money | Posted: Friday, January 29, 2016 7:12 am  

Question: I am a 66-year-old lifelong bachelorette. I have just retired from a career in real estate sales where my typical income was $45,000. I visited the social security office in Lexington and was told I could begin my social security benefits next month and receive $1,500 monthly. I came across a financial website that claimed there are social security strategies that would add $200,000 to my lifetime social security benefits. Are these claims valid? If so, what are the tricks?

The timing of when to start Social Security benefits is an important part of retirement planning.

As you may know, social security benefits are paid for life (or as long as the U.S. government is solvent — but that’s another column). These benefits are adjusted annually to keep up with the rising cost of living.

Without any current or past spouses — and I assume no minor children — your benefits will be paid based on your own earnings and only to you. You have reached what the Social Security Administration calls “full retirement age” of 66 (this will be shifted up to 67 in few years). You can start your benefits now and receive the equivalent in today’s dollars of $18,000 annually for the rest of your life.

Let’s suppose you live to 82. Your total benefits would be $288,000 — 16 years of receiving $18,000 per year.

But each year you delay benefits past age 66, your benefit will increase by 8 percent. If you can hold off starting benefits until 70, then your benefit will be $23,760 — 32 percent higher than the $18,000 you would have received retiring at 66.

If you live to age 82 under this new scenario, the total benefits will be $285,120. The benefits are set up such that they are “actuarially fair” — a single person will receive about the same benefits whether they start benefits at 66 or 70 (or any age between 62 and 70) and live to their life expectancy of 82. Of course, you may live to age 99 or pass away tomorrow, so averages aren’t always the best target.

This is where many popular financial planning outfits such as MaximizeMySocialSecurity.com are able to come up with much higher projected lifetime benefits. The general idea is that you should plan for the ‘best-case’ scenario of living to 90 or maybe even 100.

The reasoning behind this is that if you die “young” — say, in your 70s — then you didn’t need the extra money. But if you live into your 90s, you’ll be grateful for the much higher social security benefits.

Suppose you live for thirty years after retiring. Your lifetime benefits would be $540,000 if you start them at age 66, but they will be $712,800 if you wait until 70. But this $172,800 in extra lifetime benefits is only as valid as the assumption of you living to 96.

So when is the real best age for you to begin social security? That decision has to be based on what other retirement income sources you have — such as a pension, 401(k) or annuities — and how they can meet your living expenses over an unknown future.

Many financial professionals will side with the software and advise you to be patient and hold out to age 70 for social security. But only about 2 percent of retirees wait that long.

I recommend that you liberally plan the next 16 years of life – big vacations, generous gifting to family and charities and even negative events like high medical or long-term care expenses.

If $18,000 a year along with your other financial resources will support your “lavish lifestyle” until 82 — and you’re OK to live simply on $18,000 and whatever money may still be available for the rest of your days, then start social security right now.

If you can’t meet your lifestyle goals, then it may be best to delay social security and forgo that cruise around the world.

Handling financial riddles and resolutions

Paul Hamilton | More Than Money | Posted: Wednesday, January 20, 2016 5:30 pm

More Than Money is a new weekly financial-advice column published by The Jessamine Journal. It will generally follow a question-and-answer format concerning personal finance issues such as college costs, social security, managing debt and starting a business. The column will also take a look at local economic issues such as the bypass extension, education policy and Kentucky’s health-insurance market.

Three guys go to a hotel to rent a room that costs $30. They each pay $10. They head to their room when the manager realizes the weekday rate is only $25. He sends the $5 overcharge with a bellboy up to the room. The three men each accept a dollar refund and tip the bellboy $2. So each man paid $9 and the bellboy received $2 for a total of $29. What happened to the missing dollar to bring the total up to $30?

I first heard this riddle three decades ago in Jessamine Junior High from my good friend, Kent Slusher. This story may very well have launched my career as an economist.

It illustrates a few important facets of financial planning.

One: It is easy to get turned around when contemplating even a relatively simple situation.

Two: The value of a dollar changes dramatically over decades. In today’s dollars, the room may cost $90, but the riddle can still be asked the same way.

Three: The story appears to be about money, but other life realities matter. The logistics of three guys and two beds may be the trickier question.

So what happened to the dollar? The travelers’ expenses of $27 match the sum of revenues of $25 for the hotel and $2 for the bellboy. That means the tip should be counted as part of the $27 sum, not in addition to the $27. Suppose there was no tip; should $27 in expenses equal the original cost of $30? No way.

Question: What is the best way to follow through on a New Year’s resolution?

Answer: Setting goals to better our lives each January — no matter how many times we’ve fallen off the wagon — is better than accepting the status quo.

We typically know what we need to do: eat less and exercise more; or, for financial resolutions, spend less and save more. Following these resolutions will undoubtedly drop both pounds and debt.

Those who are successful in these goals usually share three traits: they set attainable goals, hold themselves accountable and have a plan.

Suppose your goal is to become debt-free. That may be too ambitious to accomplish in a year. Instead, you could set a series of monthly goals, such as not eating at restaurants or setting up a budgeting app such as Mint.

You can be accountable to yourself or a friend. You could throw down a challenge to a friend to see who can hold out the longest without dining out. Keep score and text your progress each day.

Putting a plan in place lets you set attainable monthly goals and track your progress. It’s important to have a written plan; I suggest tracking your goals on your email calendar. If you are unsure of how to set up a plan, I am more than willing to help you establish one.

I would add to these ideas doing something in the next two minutes to set up early success.

If you have high-interest debt, take all your credit cards out of your wallet and cut them up. Text your friend and ask him or her to be an accountability partner. And here’s my challenge to you: Do this before you turn to the next article in the newspaper.

Dr. Paul Hamilton is an Economics Professor at Asbury University and a Certified Financial Planner. Questions you’d like to see answered in the column can be sent to paul.hamilton@asbury.edu. All reader-submitted questions answered in the column will be published anonymously and questions may be edited for clarity or generality.

Dr. Hamilton can provide free workshops for local churches, businesses or other groups. His website is usa-economics.com.