Money Monday: 7 Dos and Don’ts for Managing a Smaller Paycheck
Many Americans were hit with sticker shock when they saw their first paychecks of 2013. It seems someone — Uncle Sam, to be exact — had made off with larger chunks of their checks in order to avoid the “fiscal cliff” debacle that enveloped the country in late 2012. Credit the expiration of Bush-era payroll tax breaks — which in 2011 rolled the Social Security tax back to 4.2 percent (from 6.2 percent) — with creating the lower digits.
The employee working for an annual salary of $60,000, for example, kissed $1,200 a year goodbye and started working with $100 less each month. Here are seven dos and don’ts to keep in mind as you figure out how to best juggle your lower check and any cost-of-living increases that will impact you in 2013:
1) Do double check the numbers when you get your first check. Use a calculator like the one on MSN Money’s Tax Center to make sure your net pay is accurate. If you find a discrepancy, bring it to the HR or payroll department’s attention right away.
2) Don’t ignore the decrease. If you continue spending like you did in 2012 you could find yourself in trouble within a month or two. A better approach is to acknowledge the lower number that you’re working with and come up with creative ways to offset it. (See the rest of the tips in this article for help with this step.)
3) Do ask for a raise. It couldn’t hurt, right? If you are up for review anyway or perhaps long overdue for a pay increase, now is the time to ask for one. Even a small percentage increase in pay could help to make up the difference left behind by Uncle Sam.
4) Don’t offset the dearth by running up your credit card bills. Adding $100 per month to offset the deficit created (for someone making $60,000 per year, for example) equates to $1,200 in additional charges annually. Multiply that amount by double-digit interest rates, and then compound the amounts by not paying off your balances every month, and watch your balance rise exponentially.
5) Do adjust your W-4, if it’s warranted. If you’re in the habit of claiming too few allowances on your W-4 in order to get a large tax refund, this may be the year to change that habit. A word of caution: putting too much back in your pocket now could lead to a larger tax bill in April 2014, so use this tip cautiously.
6) Don’t overuse mobile payments or other payment “conveniences.” It’s way easy too hit “buy now” on a daily deal app for an impulse buy (did you really need to upgrade your GPS?) or to sign up for a free trial that within 30 days is going to turn into a fulltime financial commitment (Netflix, anyone?). Just a few conscientious decisions per month can translate into $100 or more in savings.
7) Do start planning now. Don’t wait until the lower paychecks become a financial burden to do something about it. Develop an accurate budget, figure out the impact of the lower check, and then find ways to cut back and offset the deficit. Turning off lights when not in use, adjusting the thermostat, car pooling and making your own lattes can all have positive, long-term impacts on your budget.
This article has been prepared for informational purposes only. The accuracy and completeness of this information is not guaranteed and is subject to change. Since each individual’s financial situation is unique, you need to review your financial objectives to determine which approaches might work best for you.
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