Saturday, January 19, 2013

Why You Shouldn’t Be Mad About Your Paycheck in 2013


The Social Security tax rate for employees was reduced from 6.2% to 4.2% by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and implemented on January 1, 2011. The payroll tax holiday or payroll tax cut was an act signed by President Obama in 2010 to help struggling taxpayers get back on their feet financially. The tax helps fund Social Security and Medicare for millions of Americans. 

The payroll tax holiday reduced the percentage of taxes paid towards Social Security from 6.2% to 4.2%.  This provided an increase in most Americans paycheck and began phasing out for those making more than $106,800.  Taxpayers who made $50,000 received an extra $1,000 in their paycheck per year.  Married couples making $100,000 each received an extra $4,000 in their paycheck per year. A married couple making $20,000 received an extra $400 per year.  The payroll tax did not apply to federal employees covered by the Civil Service Retirement System. For self-employed workers the self-employment tax was reduced from 12.4% to 10.4%.  

In July 2012, the media first began announcing that the payroll tax cut would expire in January 2013. This gave everyone who would be affected at least 6 months to make necessary adjustments to their budget and spending habits to ease the burden of the increase in the payroll tax.  However, many Americans forgot about it and didn’t start complaining until they received their first or second paycheck in January 2013.  You could blame the government and say the payroll tax should have been continued and how could this happen when Americans are still struggling.  Unfortunately, many Americans forgot that the payroll tax went into effect January 2011 and lasted for 2 years.  

If Americans wanted to voice their concerns about the payroll tax they had 6 months to do it.  Voicing your concern 6 months later is too late.  Do you want Medicare and Social Security funded and available when you retire or do you want more money in your paycheck?  Americans have to stop depending and waiting on the government to help them.  

You should create a life where you are minimally impacted by whatever happens outside of your environment, especially the effects of the economy.  Create a financial bubble or barrier for yourself that cannot be broken unless you allow something to happen to break it. Protect your family and finances at all times to ensure you are at least able to meet all of your basic needs.

Since the payroll tax rate expired, a taxpayer making $50,000 a year will have $80 less in their paycheck each month or $40 less each pay period.  However, if you are greatly impacted by getting $40 less in your paycheck each pay period then you should look inward for a solution, not outward at the government. You should always have money left over after you pay your bills and buy necessary expenses. Here are 21 approaches to minimize the effect of government changes to your income.

  1. Create a Spending Plan. Create a spending plan to quickly track what you spend, what you earn and what you owe and finds ways to reduce spending.
  2. Get insured. Make sure you have adequate health, auto, life, disability, homeowners’ and business insurance.
  3. Save Money. Create an emergency fund with enough money to cover at least 12 months’ worth of monthly bills.
  4. Get Out of Debt. Get current on any late payments. Negotiate with creditors to setup payment plans and pay off old debts.
  5. Don’t put a hole in your pocket. Don’t spend money you don’t have. Pay for purchases with cash.
  6. Cook at home. Cook at home more often and reduce the amount of times you eat out.
  7. Don’t be lazy. Stop paying for stuff you can do on your own: oil change, hair salon/barber, lawn maintenance, painting, etc.
  8. Needs. Only buy things you absolutely need, bottled water and designer clothes are not a need.  
  9. Eat like the depression. Eat like people did in the depression. Eat mustard, mayo, peanut butter and jelly or egg sandwiches. Make inexpensive dishes like soups, stews or casseroles.
  10. Pay online. Pay bills online to save money on postage.
  11. Cancel subscriptions. Cancel magazine and newspaper subscriptions.
  12. Cable. Get basic cable, use Netflix or Redbox or cancel cable. Rent movies from the library.
  13. Downsize. Downsize your home or get a cheaper car to save money.
  14. Save gas. Drive the speed limit, avoid running red lights and perform regular maintenance.
  15. Cancel phone service. Cancel your landline service and use your cell phone for all calls.
  16. Make your own food. Make you own ice cream, soda, juice, bread, pasta and deserts.
  17. Grow your own food. Grow your own fruits and vegetables and spices.
  18. Clothing. Buy clothes in off-season, summer clothes during winter and winter clothes during summer. Buy wash and wear clothes and avoid buying clothes that require dry cleaning.
  19. Save. Save all your change and every 3 months take it to the bank and put it in a savings account. Always save something even if it’s a dollar a week.
  20. Buy generic. Guy generic brand prescriptions, food and clothes. Shop at thrift stores.
  21. Share space. Don’t be afraid to share living space with others to save money. During the depression a mother, father, children, grandparents or an aunt or uncle would all live together and help each other out with food, money and living expenses. 

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