Why You're Making 2% Less (and How to Make Up the Difference)
Have you looked at your first 2013 paycheck yet (if not—you should) and wondered why you’re suddenly making less than you were last year? The Social Security payroll tax reduction, which expired at the end of 2012, did not get renewed in the fiscal cliff deal, which means your withholding increased from 4.2% of your salary to 6.2%.
A extra 2% doesn’t sound like much, but put in perspective, if you’re making $25,000 per year, you’re out an additional $500. On a salary of $50,000, that’s $1,000. At my salary, over the course of the year I’ll lose enough to cover one month’s rent plus what I typically stash away in savings in a month.
So, no matter what you’re making, you’ll likely need to make some changes to ensure your monthly budget adds up. On that note, here are a few suggestions to help you balance out the additional tax hit.
Pay Attention to Your Utility Bills
Unless you’ve already set your thermostat for the lowest temperature you can stand, you can probably turn it down a bit. Put on a sweater and dial down one or two degrees from what it’s currently set at. And remember to turn down an additional 5 degrees at night (when you can cuddle under lots of blankets) and when you’re at work. This can save you 10% on your heating bill.
Evaluate Your Transportation Expenses
Can saving on your commute make up the difference in your take-home pay? Maybe. Could you carpool with a co-worker? Do you live close enough to walk or bike instead of taking the bus (bonus points for getting your exercise at the same time)? Does your company offer pre-tax transportation savings plans?
Getting a Bonus? Set Your Priorities
If you’re one of the many getting a year end bonus, carefully consider the best use of those funds in light of your higher taxes. While you may have been dreaming of a spending spree, could some of that money help you start the year off in a better financial position? Maybe it’s enough to wipe out some of your debt or start an emergency fund (since you might not be saving as much as you were previously). The peace of mind you’ll get knowing you’re in a good spot financially will be worth it.
Pay Cash (or Debit)
Some personal finance experts recommend paying for everything in cash because you’ll feel the pain of parting with your hard-earned dollars. But debit can be just as good because the electronic trail makes it easier to track exactly where your money’s going.
Take a second look at your last few months’ expenses, using a online tracking system like Mint, and see if you’ve been paying for anything you no longer need. Magazine subscriptions? Netflix that you haven’t used since summer? I bet there’s at least something you can cut!
And if you need another reason to opt for cash or debit over credit (even if you pay off the balance each month): A new regulation makes it possible for merchants to charge you the interchange fees they have been paying the card companies to process your transactions. That’s right—starting January 27, you might be charged an extra 1.5% to 3% (no more than 4%) of your total purchase amount
State law prohibits the new fee in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas, and not all merchants in states where it is permitted will participate; however, you should have a backup plan to avoid your wallet’s taking yet another hit!
Ask for a Raise
No, it’s not up to your employer to make up the difference for you, but if you’ve got a compelling case for a raise, why not go for it? Ask yourself these three questions before considering how to frame your request.
We’ve shared our tips—now we want to hear yours! How are you planning to make up for this decrease in your take home pay?
Little brings Emily more of a thrill than taking a so-so sentence and making it shine or giving an alright paragraph more of a punch. She’s a self proclaimed word-nerd whose penchant for language took her from barista-ing in a bookstore café during college to serving as a Fulbright English Teaching Assistant in a high school just outside of Madrid after graduating with a double major in English and Spanish. Since returning to the States over a year ago, Emily has worked as Associate Editor for The Daily Muse and established a Spanish language social media presence for one of Southwest Michigan’s leading credit unions. Recently married, she, her hubby, and their crazy cat, Angel, call the shores of Lake Michigan home.More from this Author