3 Tips to Increase Your Paycheck
If you’ve ever spoken to a financial planner, he or she may discuss the topic of mental accounting. Most of us manage our budgets this way: we already know where most of our paycheck is going before we even receive it. When the check on the 15th arrives, it’s allocated to the cable bill, or the first-of-the-month check goes straight to the mortgage payment, for instance. Given that most of us have this method of managing money and we have little room in the budget for any additions, we rely on every cent of our paychecks.
To help us better budget and preserve our money, the theme behind most professional advice is to save, save, and save some more. Lower our grocery bills, spend less on gas, and all-in-all, don’t overspend. In spite of overwhelming data suggesting that we as a society spend too much, the problem continues to worsen. Since 1980, recreational expenses have more than doubled for middle-income Americans (according to The New York Times), and behaviors that used to be reserved for the wealthy — like buying a vacation home or a luxury car — are now becoming more common for middle earners.
Given that we are seemingly going to continue with some of the same spending habits, perhaps we should work toward increasing our take-home earnings. A large portion of our paycheck goes to federal, state, and local income taxes, as well as Social Security and medical insurance. Achieving the proper balance can increase your pay throughout the year while still providing enough health coverage and preventing a hefty bill during tax season. Here are three tips to increase your paycheck.
1. Maximize allowances
Over-withholding occurs when the information you place on your W4 is not an accurate reflection of your true household and financial situation. Most of us short ourselves and allow the government to take too much out of our pay. When you have too much withholding coming out of your pay, you are basically loaning money to the government with zero interest. Data published by the University of Chicago indicates that each year, around 100 million taxpayers receive refunds as a result of over-withholding. On average, each taxpayer overpays around 7 percent of their adjusted gross income to Uncle Sam.
Don’t think this sounds like much of a difference? If you earn the median household income of around $51,000, the monthly value of each withholding allowance is estimated at $82, according to Intuit. Therefore, if you are claiming one when you should be claiming four allowances, you are looking at a difference of around $250 per month, or around $125 per paycheck.
What about the end of the year and your refund? If you have the same job and financial situation as last year, you can use last year’s information to estimate how this year will turn out. A good baseline estimate for someone with a middle income is for every thousand dollars you received in refund dollars last year, that’s one additional withholding you may need to include. To determine your appropriate withholdings and any needed adjustments to your W4, you can use the IRS Withholding Calculator. To ensure you still receive a refund and see a paycheck increase, you can opt for only a moderate increase in your withholdings allowances.
2. Time at work
Many companies — around 20 percent, according to Volunteer Match – offer volunteer time off (VTO). VTO increases morale and promotes job satisfaction. It is particularly common in call centers and in customer service industries. It may be a slow day in the office with not too much work to do or your office may be overstaffed on certain days. VTO is tempting, as it is a get-out-of-work-free and clear card. You can go out to lunch, go shopping or just go home and relax.
The problem is that for every hour of VTO you elect to take, it is one less hour of pay you receive. If your company offers VTO on a consistent basis, these hours can really add up to a significant portion of your pay. Resisting the devilish impulses to take VTO and other forms of unpaid time off will make for a better paycheck.
Hourly employees, in addition to resisting the desire to get away from the stresses of work, sometimes have the option to pick up extra hours. Many companies offer nontraditional overtime options that don’t involve late nights or early mornings. Instead of taking an hour lunch, maybe talk about reducing it to 30 minutes sometimes so that you may pick up a few extra hours here and there. Or you can work one hour later each night to gain five extra hours per week. This may not sound like a lot, but an additional 10 hours per pay period — at around the average of $25 per hour – adds up to $250 per biweekly paycheck (before taxes).
Salaried employees may not have overtime options, but most receive performance reviews on a fairly regular basis. Pay increases are, of course, positively correlated to good performance reviews.
3. Health insurance
Each pay period, many of us have money deducted for medical, dental, life, and vision coverage. These are substantial costs and they reduce take-home pay. Around 150 million Americans have health coverage through their jobs, and they pay an average of around $100 per month for individual coverage and around $380 for family coverage, according to Kaiser. As we all know, this cost doesn’t cover all of our healthcare needs, and when you add in deductibles and co-pays, medical costs rise substantially.
To decrease the amount of money coming out of your paycheck, evaluate the plan options your employer provides versus the options your spouse’s employer may provide. Rates and worker contributions depend on the size of the business, the earnings of other workers, and the type of plan. For instance, workers in small firms generally pay less for single coverage than workers in larger firms. Premiums also tend to be higher in firms where there’s a large percentage of earners who make less than $23,000. You may have the option to get coverage at a better rate from your spouse’s employer, or vice versa.