You and Your Money: Do These 3 Things Right Now to Keep More of Your Money
When was the last time you got a raise? If it’s been a while, let me show you how to get one right now.
This won’t be a raise in the traditional sense because you won’t be getting it from your employer. You’ll be getting it from yourself. While your salary (your top line) is important, what you have left over after you pay all your bills (your bottom line) is just as important because you’ll be able to do more (or better) with it financially. Money is money, and more money in your back pocket is the same as a raise.
So to get your raise, do these three things:
- Stop overpaying the government
If you don’t understand how Federal and State income tax withholdings are calculated, chances are that you are having too much withheld from your paycheck. Your withholdings are dictated by what you submit to your employer on Federal and State W-4 forms, usually when you are hired. Excess withholdings lead to a refund at the end of the tax year, and according to March 2020 data from the IRS, the average individual Federal income tax refund (for tax returns filed thus far in 2020) is $2,908.
If you’re getting a refund of this size or more every year, ask yourself this: Why are you letting the government hold on to your money? Don’t you want it? It’s your money!
If you want to keep more of this money, you have to do some up front tax planning. Towards the end of each calendar year, the IRS releases the tax brackets for the next year. If you have a ballpark figure of what your tax return will look like for the following year, you can apply these new tax brackets to estimate how much you will owe the Federal government in taxes. You can do the same for your state taxes.
You then submit a new W-4 form to your employer, requesting a lower amount to be withheld from your paychecks. IRS Publication 15-T will you determine how to calculate appropriate Federal tax withholdings (see your individual state withholding tables). The IRS however would like you to withhold a bit more than your tax bill will be. I try to overpay $1,000 each year.
For sure, this involves a bit of time and effort on your part, but doing this one step and nothing else will net the average person a $159 per month raise.
($2,908 — $1000) / 12 = $159 per month
Of course, the $1,000 overpayment will be returned as a refund the following year.
2. Cut the cord
This one involves sacrifice, but the cost of cable and satellite television subscriptions has skyrocketed to the point that you have to have an honest conversation about how much value it provides for you and your family. If you are paying $200 per month for your subscription (about average according to several sources), then ask yourself, what else could we be doing with this money?
If you need to watch television, you could cut the cord and subscribe to lower cost streaming services. Let’s say that you capped your streaming expense to $50 per month, with which you should be able to subscribe to multiple services. That would net you a raise of $150 per month.
$200 -$50 = $150 per month
3. Eat more at home
The U.S. Bureau of Labor Statistics reported in its “Consumer Expenditures Midyear Update — July 2018 to June 2019”, that the average American household spent $3,434 per month on “Food away from home”. That is, eating out. This equates to about $286 per month.
Now eating out is fun, but how fun is it when the waiter drops off the bill totalling $50 or more just for dinner for two? And that’s before the tip.
But let’s not cut that out all together. If you could stick to eating out half as much per month, you could get a raise of $143 per month.
($3,434 / 12) / 2 =$143 per month
If you are an average consumer, you could theoretically give yourself a raise of $452 per month by doing just these three things. That’s $5,424 a year (of course, your numbers will vary).
$159 + $150 + $143 = $452 per month = $5,424 per year
By no means am I saying that it’s easy to do these things. They involve sacrifice and effort. But once you commit and stick to it, you might find that you are able to easily live without them.
Now, whenever most people get a raise, they tend to use the additional money they earn to enhance their lifestyle rather than saving it. That is, they spend up to their income rather than save up to their income.
You won’t build wealth this way. And would you rather look wealthy or be wealthy? Would you rather have a bank account with lots of zeros versus an oversized house with lots of stuff?
So what could you do with your new raise?
- Do you have $1,000 in your savings account to cover an emergency, like if your furnace were to break down suddenly? This would negate the need to use a credit card in those scenarios.
- Do you have an amount in savings equal to half of your annual salary to cover your expenses if you lose your job? Having money in the bank makes this situation a lot less stressful.
- How much would $5,424 knock off of your credit card balance? Or would it pay off one of your cards? Debt sucks. Nuff said.
- Are you on track with your retirement savings? The maximum you can contribute to a 401k account in 2020 is $19,500 ($26,000 if you are 50 or older).
- Are you able to contribute to a Health Savings Account (HSA)? HSAs offer a triple tax advantage — your contributions aren’t taxed, the growth isn’t taxed, and distributions aren’t taxed if you use them to pay for qualified medical expenses. Heck, if you instead pay for medical expenses out of pocket, you could use an HSA as a second retirement savings account.
- Might you increase your salary if you spent the $5,424 on additional education for yourself? That would be a double raise.
I’m sure if you took a close look at your spending habits you could find other things to cut out and give yourself a bigger raise. I do this regularly, in fact it’s become a game for me — where can I trim expenses this month?
There aren’t many things that feel as good as having money in the bank along with little to no debt — especially in volatile times like we are experiencing in 2020. Doing these 3 simple things will get you that much closer to financial security.
This article is intended for information purposes only, and should not be considered financial advice. Consult a financial professional before making any major financial decisions.
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