According to the American Payroll Association’s 2014 Getting Paid In America survey, two thirds of American employees are living paycheck to paycheck. Here are five steps you can do to take control of your paycheck and put more money in your pocket.
1. Adjust your W-4. This is the withholding allowance form you give to your employer. The average tax return for 2014 was $2,800. If you are receiving a tax return of more than $1, 000 you are overpaying your taxes. This means you are essentially giving the government a tax-free loan. By adjusting your W-4, you can get closer to what you actually owe. You can treat that extra money in your paycheck as an instant raise or you could put it into your bank account or 401(k) to earn interest.
2. Take advantage of flexible spending accounts (FSAs) if they are offered at your job. FSAs can help you save 35-40% on everyday expenses. There are two popular types of FSAs: dependent care accounts and medical care accounts. Dependent care accounts can help you save money on expenses, such as daycare and elderly care for aging parents. Medical care FSAs can help you save on visits to doctors or the dentist, new eyeglasses, and prescription medicines. Sign up for this benefit through your employer and you will have money deducted from your paycheck each payday. These deductions are made before taxes are calculated. This means you pay for these everyday expenses with tax-free money you’ve earned.
3. Enroll in commuter benefits plans. This can help reduce the cost of your commute. It applies whether you drive to work and pay for parking or if you take public transportation. Currently, up to $130 in transit passes can be purchased each month on a pre-tax basis. Parking can be reimbursed up to $250 per month.
4. Use direct deposit to help you save. You can use split deposit to direct your pay into different accounts. Put what you need for everyday expenses into your checking account, but also direct a portion into other accounts. For example, a long-term savings account where the funds can earn interest or a vacation fund.
5. Use 401(k) plans to save for retirement. The money you set aside now will create a more comfortable and stable lifestyle for you in retirement. Money placed in a traditional 401(K) isn’t taxed until you retire and begin to take it out. At this time you will most likely be subject to a lower tax rate. If your company matches a percentage of your 401(k) contributions and you are not contributing, you are essentially giving up “free money.”
These five simple steps can get you started saving more money simply by adjusting what you do with your paycheck. Have any other ideas? Share them in the comment section below.
By Bill Dunn, CPP
