Give yourself a raise! Stretch your paycheckBy
Christie Taylor
• Bankrate.com 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.
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.
At Texas Children's Hospital in Houston, 30 percent of the
hospital's 6,000 employees participate in flexible spending account programs.
Arlene Hillegeist, director of human resources services, says that many more employees
could benefit from these accounts, but they either don't know the options exist
or are wary about putting money into them. One reason
for the hesitation is the "use it or lose it" rule under which these
accounts operate. You lose any money that you don't use by the end of the year.
But if you plan conservatively and carefully, you can avoid this loss. Health-care
flexible spending accounts operate on an individual basis, so you and your spouse
may each contribute to your own accounts. Your employer determines the maximum
contribution. Dependent-care flexible spending accounts operate
on a per-household basis -- up to a $5,000 per year maximum. While
companies are powerless against the limits the IRS has set on some of the flexible
spending accounts, they can be creative with other pretax benefits such as transportation
reimbursement. Tax benefits for traveling
to work
According to the IRS, transportation reimbursement
of up to $190 per month for parking and up to $100 per month for mass transportation
and van pools may be made available to employees. You must work for a company
that has such a plan in place to have these costs deducted from your paycheck
before taxes. Texas Children's offers several tax-saving commuter
options for its employees, who can deduct a $50 monthly parking fee from their
paycheck. Van pooling and bus passes can save employees as much as $2,000 a year
in commuting costs. To find out which of these and other money-saving
programs your company offers, contact your human resources department. Retirement
Retirement plans are another great way to stretch your paycheck. Your contributions
are made with pretax dollars. You're saving for the future while reducing today's
taxable income. With 401(k) plans, employees can contribute
a portion of their salary to a company-sponsored plan. Many employers will match
a certain percentage of this contribution, in essence offering "free money"
to those who invest in the plan. While it is difficult to
argue against socking away money for those golden days, it is also important not
to get too carried away with unrealistic visions of leaving the workforce at age
40. "If you're putting too much away in a 401(k) or savings
account, and you don't have enough to live on, and you're using credit cards all
the time, that is defeating the purpose," Lawrence explains. "If at
the end of the month, you are pulling money out of savings, you end up saying
to yourself, 'I'm not a very good saver.' There's a kind of psychological erosion." Mapping
out monthly and yearly expenses using tools such as "The Budget Kit"
can help you predict the cost of incidentals and determine how much money to put
into flexible spending accounts and retirement plans. Direct
deposit
One of the most basic benefits an employee can use
is direct deposit. With this feature, your employer deposits your paycheck directly
in your account each pay period. Not only is it easy, it makes other automatic
payments simpler. Plus with automatic deposit, there is generally no hold on the
funds. For example, if a $3,000 paycheck is added to your
account on the first of every month, you might also set up your $250 car payment
to be automatically deducted each month. This saves time and eliminates the chance
that you may forget to pay the bill and incur a late fee or finance charge. Regardless
of whether you contribute $10 each month to a 401(k) or $100 to a savings account,
plan out how best to allocate your paycheck -- and then stick to the plan. You
may find that some luxuries will become more affordable than you had imagined. Christie
Taylor is a freelance writer based in Houston.
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