5 Easy Ways to Save Money Lost Due to the Payroll Tax Increase
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Unless you’ve been living under a rock recently, or have not looked over your paycheck this year, you’ve probably noticed that your take home pay has suddenly decreased by 2%. I realize that the title is a bit of a misnomer as the payroll tax did not increase, per se; rather, the payroll tax holiday expired. This decrease, from 6.2% to 4.2%, was a means by Congress and the Obama administration to help give middle class Americans more take home pay. Politics aside, as that is not the purpose of my post, the expiration of the payroll tax holiday is something that will impact many Americans. Many are saying that the “average” family will feel a loss of roughly $1000-1500 per year to their take home pay. To some this might seem like peanuts, but to many families this is their annual summer vacation or means fewer groceries at the grocery store or less savings. We all knew, or should’ve at least, that this payroll tax holiday was going to come to an end at some point. So, now, we must look for ways to continue the same lifestyle with either less cash or simply make cuts. The beauty of many of these ideas to make do in light of the payroll tax issue is that they can be done at any time and are a great way to be frugal and stretch your budget.
Your Withholdings are a Great Way to Stave Off the Payroll Tax Problem
I’ve written before about getting big tax returns and this is a great time to look at your tax withholdings. I know the argument for a big tax return is that it’s a way to not foolishly spend your money throughout the year or a way to get something nice at year end. However, why would you trust our government to spend your hard earned money when they’ve shown that they’re incredibly shortsighted as to how to spend it in the first place? If you’re getting tax returns to the tune of several thousand dollars then you’re likely missing out on several hundred dollars a month that could be in your pocket now. If you find yourself in this situation, making some changes to your withholdings is a great way to mitigate the payroll tax issue.
Increase Your 401k Contribution
Giving to a 401k is an easy way to save money towards retirement and can come directly out of your paycheck. I know it may seem counterintuitive to take more money out of your paycheck now that you’re getting 2% less off the top, but it does work. The nice thing about your 401k contribution is that it lowers your taxable income. Of course, I want to give the disclaimer that if your company does offer a 401k match then put away at least the amount to get the full match. Not doing so is simply throwing away free money…which is my favorite!
Look For Unused Memberships
If your family is like mine then you have numerous memberships and those memberships usually cost a fair amount. Take a look at how often you use each membership and whether or you can justify its cost. We’ve done this recently as we were just simply looking for ways to save a little extra money. We had a membership to the local botanical gardens. Our kids and Mrs. Frugal Rules especially love going there. I want to be able to provide that for them as well. However, with the chaos and busyness of life we never make it there. Looking back over the last few years we’ve only been twice and that was for a Mother’s Day brunch. The thing is that you already have to pay a fee for the brunch, regardless if you’re a member, and the fee also gets you in to the gardens. It just made sense to cut the membership as we never used it. That money easily went back to our budget and was done prior to the payroll tax debate.
Take a Look at Your Bills
I hate paying bills like the next person, but the payroll tax increase might force you to take a look at your bills. Do you have cable TV? It’s likely you have channels you’re not watching and if so you can possibly lower your programming package. You can also simply call and ask for a lower rate. My wife will do that several times a year and it’s nothing to get $10-15 per month knocked off our bill for a year.
You could also look at car insurance. Perhaps you could increase your deductible which would possibly lower your monthly rates. You could also look at ways to bundle insurance coverage in order to get a lower rate. Considering auto coverage is mandatory in almost every state and will continue to be a long-term expense of owning a vehicle, researching ways to get the best car insurance is a worthwhile investment of your time.
Tighten Your Belt
I know that losing $100 per month or so will be felt by many families, especially if you were not prepared for it. The payroll tax increase will force you to be more creative in your spending habits. Maybe it means you replace a few nights of eating out with making a creative date night at home. Maybe it means that you cut things from your budget entirely. It could also mean looking for ways to bring in more income like taking on a side gig or selling unwanted/unneeded stuff on EBay or Craigslist. While the loss of this extra take home pay will hurt many, and from recent consumer spending reports it has, there are ways that you can make up for this if you think creatively.
Were you prepared for the expiration of the payroll tax holiday? What are some creative ways you’ve used to cut corners on your budget or bring in some additional income?
Photo courtesy of: Matt Aiello
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.