They say the best things in life are free, but having a life is not. Learn how to keep more of your paycheck in your own hands.
Do you ever find yourself looking at your paystub and wondering what happened to all of your money? You haven’t paid a single bill, yet you’re already down 25%. Do you wonder what FICA is and why they get first dibs?
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1. Adjust your tax withholding
When you start a new job, you fill out an “Employee’s Withholding Allowance Certificate” (IRS form W-4) to let your employer know how much of your wages to withhold for tax purposes. The form asks how many allowances you wish to claim. If that question confuses you, you’re not alone.
A higher number of allowances means that less will be withheld from your paycheck. Less withholding means more money in your pocket. Keep in mind that if you have less money withheld, you could end up owing money when it’s time to file your taxes. The IRS has a calculator you can use to estimate how much should be withheld from your paycheck.
The W-4 form can be adjusted throughout the year to modify the amount being withheld from your check. Some companies will have you use a human resource software system to make changes as opposed to filling out a paper form. Talk to your manager or someone in the human resources department to determine how to make those changes.
2. Do the math
Be sure to regularly review your pay stubs to make sure you aren’t subject to any deductions or benefit plans you didn’t mean to enroll in. It’s not unheard of for companies to withhold small amounts of money for a charity, for example. You may have inadvertently agreed to that withholding by missing some fine print.
If your wages are being garnished to repay a debt, be sure to figure out the end date for the final payment. Companies generally do not stop withholding until they receive a release letter from the collecting agency. This means the final payment could be more than you actually owe. You would most likely get a refund, but there could be a wait.
Knowing what should and shouldn’t be coming out of your check helps to keep more money in your pocket, and keeping an eye on your pay stubs will help you catch errors in a timely fashion.
3. Update your 401(k) contributions
Contributing to your company-sponsored 401(k) has a couple of major benefits. First, many companies have an employer match program, where the employer contributes either $0.50 or $1 for every $1 you contribute, up to a certain amount. That’s free money!
Secondly, your contributions are not taxed at the time of the contribution. This means that what you elect to put in your 401(k) is exactly what is deposited, without the government withholding tax up front (though you will pay taxes on the funds you withdraw in retirement). Therefore increasing your 401(k) contributions means keeping more of each paycheck, even if that money isn’t going to a savings account.
4. Employee benefits
On the subject of employer contributions, make sure you’re up to date on the benefits your employer offers. Aside from a 401(k) match, many employers offer internal benefits that will save you money outside of work. Your employer might subsidize daycare or offer tuition assistance. Pet insurance is another perk that has gained popularity as an employee benefit. Phone and internet expenses may also be reimbursed, depending on your type of job. Employers also sometimes pay for free counseling services or provide a discount. Why pay for any of these services if they’re being offered for free?
Many companies also have wellness programs or offer gym deals or memberships. They may also have relationships with local businesses for further discounts. If you happen to be a freelancer or the owner of your own small business, retailers like Wayfair, Home Depot, and Lowes offer discounts for business accounts, which could also help you save money.
5. Revisit your paycheck deductions
One of the more common mistakes people make is not regularly monitoring or updating their financial information. From insurance beneficiaries to investment choices, people often just “set it and forget it.” Unfortunately, many individuals make the same mistake when it comes to opting into employee benefits. When you initially made your benefit elections, your situation may have been different. For example, you may have more insurance coverage than you actually need. Adjusting your health insurance plan could put a few bucks back in your pocket. Just remember to note any change in your deductibles; you don’t want any surprises after your next doctor’s visit.
Employers may also offer a variety of additional benefits that you may not need. Long-term care insurance may not be a high priority for a young employee, and if you don’t have dependents, life insurance may not be a prime concern. Subsidies for other expenses — like parking, public transit, or a local gym membership — are great if you make full use of them. But if you don’t, then even the reduced amount you pay is wasted.
With all of this savings potential, it pays to learn more about where every dollar of your paycheck is going. Outside the workplace, there are other steps you can take to keep a little more of your money in your pocket. “No spend” months, where you don’t buy anything non-essential, are a great savings tool to try out.
Reviewing your employer’s benefit programs and revising a few habits can help you stretch each paycheck a little further. You may not be able to get rid of all of your taxes and deductions, but you can certainly make sure that you’re only paying what’s necessary.
View more information: https://www.fool.com/the-ascent/banks/articles/5-ways-keep-more-your-paycheck/