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Give yourself a raise! Stretch your paycheck

Most of us receive our paychecks, pay our bills and spend the rest, not thinking about ways to make our salary go further.

More than 63 percent of America's workers are still living paycheck to paycheck, according to a recent survey conducted by the American Payroll Association, and although up-to-date wardrobes and French manicures might provide comfort, so does having enough money to pay bills and save for the future.

"Most people have enough money coming in that they don't have to be diligent," says Judy Lawrence, author of The Budget Kit: The Common Cents Money Management Workbook.

Instead of examining ways to make their money work in their favor, most people relax into comfortable, and often nonproductive, spending habits, says Lawrence.

Below are some easy ways to stretch your take-home pay.

Push your income to the limit
Take charge of your salary. The first step in maximizing what you earn is to understand where you spend money -- including $3 on a latte every morning and $10 on late fees at Blockbuster.

Lawrence recommends writing down everything you spend.

"You have to be in a certain psychological place to do this," she says. But it's helpful to know what your lifestyle is really costing you. Face the numbers. Once you know how much you spend, look for little ways to save.

The next step is discovering how your employer can help.

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Take full advantage of all the employer-sponsored benefits such as flexible spending accounts, retirement plans and direct deposit to save time and money.

Flexible spending accounts
Participating in an employee-sponsored health plan is one of the most popular ways to stretch your paycheck. These plans allow you to pay for health care tax-free, and set aside money in a flexible spending account to cover any costs not covered by your medical insurance.

"Pretax benefits are the way to go," says Steve Goldberg, owner of a tax consulting and accounting services firm in Lexington, Mass. "If you are a salaried employee and do not own a home, there are not a lot of other things you can do on your own to save on taxes."

Flexible spending accounts are one of the most popular options for saving pretax dollars. The two most common types are health-care flexible spending accounts and dependent-care accounts. Some employers offer a third option -- a transportation reimbursement incentive program -- which is slowly increasing in popularity.

Health-care flexible spending accounts allow an employee to set aside pretax dollars to pay for medical costs not covered by insurance. The money may be used to pay for expenses such as prescription drugs, alternative therapies, chiropractic treatments, contact lenses, smoking cessation programs, orthodontic expenses and eyeglasses. In September, the IRS approved paying for over-the-counter drugs with flexible spending account money. The list of approved items is extensive, so contact your employer for an up-to-date itemization.

This is how these accounts work: You decide on the amount you want to set aside for health-care costs for the following year. Each pay period a portion of that amount is deducted from your paycheck. If you designate $2,400 for a health-care flexible spending account, $200 will be deducted each month, before taxes.

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-- Posted: Sept. 20, 2004
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2004 Debt Guide
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