6 Steps to Survive Your Suddenly Smaller Paycheck
This story originally appeared on The Fiscal Times.
Most people escaped an income tax increase in the fiscal cliff drama, but everybody will feel the pain from the payroll tax’s climb from 4.2% last year to 6.2%. Households bringing home $50,000 a year will take home roughly $38 less per biweekly paycheck (about $1,000 a year), and those making $100,000 will see about $2,000 less a year.
Fret not, though – there’s more than a few ways to make up the lost income. Here are six tips to survive the tax hike:
1. Deliver on New Year’s Resolutions
It pays to be healthy. According to an eHealth report last week, obese Americans pay an average of 22% more in monthly health insurance premium payments than their normal-weight counterparts. Smokers pay premiums that are about 14% higher.
To save money, consider a health plan that offers gift cards, premium reductions or direct financial contributions to health savings accounts for employees who engage in wellness activities, such as completing an online health assessment, enrolling in a health coaching program or doing an at-home health screening. UnitedHealthcare, for example, offers employers Personal Rewards, a wellness program that enables an employee to earn up to $600 per year (or $1,200 per couple) for meeting certain health benchmarks. Other examples include UnitedHealthcare’s Diabetes Health Plan, where diabetics who follow their doctors’ recommended treatments can save up to $500 per year through lower copays and discounts on drugs, and Cigna’s DailyFeats, which lets members earn points for healthy behavior and redeem them for rewards.
Mortgage refinancing can create much-needed breathing room. Mortgage rates remain at historic lows and haven’t been above 5% since April 2011, according to Bankrate.com. At that time, the average 30-year fixed rate was 5.07%, meaning a $200,000 loan would have carried a monthly payment of $1,082.22. With the average rate now at 3.58%, the monthly payment for the same size loan would be $907.04, a difference of $175 per month, or $2,100 for the year. Unfortunately, the savings doesn’t include the fees you pay your lender to refinance, and the process can take several months at least, due to the added paperwork requirements (financial statements and other documents) that are now built in.
3. Cash in on Your Stuff
Have an electronic “yard sale” via social media, auction stuff on eBay or sell goods on Craigslist. Take photos of the items you don’t use or need. Upload them to Facebook or the site of your choosing and type a brief description under each. You can also unload gadgets that are ready for the tech yard on Gazelle.com. In the last year, according to Gazelle, it paid out an average of nearly $400 for a used Apple desktop or laptop computer, iPads, $235; iPhones $134; Android phones $81; BlackBerry phones, $64.
4. Rent Items
Websites like us.zilok.com allow you to rent just about anything to anybody – whether you own a jet ski and want to make extra cash or you want to rent jewelry, poker sets, or bicycles, points out Howard Dvorkin, founder of Consolidated Credit Counseling. Your car can also bring cash. Rent it out through outfits like RelayRides. According to RelayRides, the average RelayRides car owner earns $250 a month by renting out their car. Over the course of a year, that’s $3,000, and RelayRides provides full collision coverage up to the cash value of the car, as well as a $1 million liability insurance policy. Zilok, on the other hand, leaves the rental agreement up to the owner and the renter and offers no insurance guarantees.
5. Make the Most of Your Investments
The New Year can be an excellent time to review your investments, especially if you have mutual funds. The internal expense fees charged by many mutual funds can be well over 1%. Reducing these on a $100,000 portfolio can easily save you more than $1,000 annually, says Joe Bantz, a certified financial planner with the Foster Group, an investment advisory firm with locations in Iowa and Nebraska.
Bantz recommends buying either low-cost, passively managed mutual funds or no load funds (which are sold without commissions or sales charges). For example, the American Century Global Real Estate mutual fund charges 1.46% annually in internal expenses. As an alternative, Vanguard’s Global ex-US Real Estate Index ETF has an expense ratio of 0.35%. On a $100,000 investment, this saves $1,110 in just the first year. Another example is the use of Vanguard’s LifeStrategy Moderate Growth fund (expense ratio 0.16%), instead of American Funds’ Growth Portfolio (1.02%) saves $860 annually on a $100,000 investment, says Bantz. Hire a professional advisor to avoid making mistakes.
6. Be Smart With Your Bills
Automate payments to avoid late fees and find out if your lender and utility company provides a reduced interest rate or other rebate for using their automated payment services. Redeem credit card rewards. Check your credit card statements to see how many rewards “points” you have. Then visit the rewards website to find out if you can convert the rewards into cash or gift cards, advises Kevin Gallegos, consumer finance expert with Freedom Financial Network. Some credit cards even double the value of your rewards at specific retailers.