How to Make the Most of Your Paycheck
When you receive your first paycheck you may be surprised at how much is being taken out in taxes. As a young single worker, you are at a disadvantage when it comes to taxes. You will have fewer deductions than those people who are married and have children do. If you do not own a home, then you will not have those deductions either. If you are in a higher tax bracket, you may be surprised to realize just how much is going to taxes each paycheck. You can make the most of your paycheck by taking advantage of the employee benefits offered by your employer.
Reduce Your Taxable Income
If you sign up for the benefits offered by your employer, you can reduce your taxable income and make your dollars stretch further. It is important to carefully consider what you are signing up for and how it may affect your tax picture. You may be surprised at what you find. Things like your health insurance, retirement contributions, and flexible spending accounts can help reduce your taxable income. If you take advantage of your employer's match, you can increase your retirement contributions without being taxed on them. Some benefits such as purchasing a reduced-cost bus pass are not tax deductible. You can check with your human resources officer to make sure the ones you are considering are tax deductible. It is important to review your benefits each year during open enrollment as your situation changes.
Estimate Your Withholdings
As you consider what benefits to sign up for, you may feel that you can not afford them all. However, if you check with a payroll calculator, you may be surprised to see that your insurance premiums and 401K contributions really do not affect your paycheck by much. This is because the amount you are taxed on decreases, and so the tax you pay also decreases.
Take Advantage of Benefits to Increase Your Savings
If you sign up for the benefits, be sure to take advantage of them. The eye insurance may be great, but if you never use it, you are just throwing money away. Similarly, you need to make sure that you use all of the money in your flexible spending account. This can be tricky because you have to estimate the amount that you need to have withheld each month that you will use. If you do not use the money that year, you will lose it.
Use Your Employee Match
One of the best ways to stretch your paycheck is to get the extra money that your employer will contribute to your retirement accounts on your behalf. Often these are matching funds, so you must be contributing to your 401(k) in order to receive them. For example, if you have an employer match of up to three percent of your salary, your employer will contribute an additional three percent when you do. This will bring your total contributions up to six percent of your earnings, and it is basically free money. Some employers have very generous matches and may go up to six percent, which would mean with your contribution you will have a total of twelve percent contributed to your 401(k).
Other Ways to Stretch Your Paycheck
- You can stop living from paycheck to paycheck by setting up a budget and saving money each month. Set up an emergency fund, and then work on getting out of debt as quickly as you can. The financial habits that you set up now will benefit you in the future. If you are being paid with a prepaid debit card, you may also face hidden fees associated with the card, and it is even more important to budget your money.
- Sign up for your retirement account as soon as you qualify. This is one habit that will help you in the future. You can also begin contributing to an IRA if you do not qualify for retirement accounts through your employer. It is important to begin regularly contributing to retirement so that you can retire comfortably. If you begin investing in retirement as soon as you start working, you should be able to save enough money to retire. Try to increase your savings up to about fifteen percent of your income. You can do this as you get raises to make it easier to reach that goal.
- If your new job offers bonuses, you should not include them in your budget. the bonuses may vary from quarter to quarter, and you may not receive a bonus every year. Instead, you should create a spending plan for your budget for your bonus and use it to help you reach your financial goals more quickly. Your bonuses can help you get out of debt or save up a down payment for your home more quickly.
- Getting out of debt will increase how much you can do with your take-home pay. If you are constantly struggling to make ends meet or you want more spending power, reducing your monthly obligations, like debt payments, will do that. Take the time now to set up a budget that gives you extra money to put toward your debt payment plan. The sooner you are debt free, the sooner you will be able to reach your other financial goals.