Are you getting a smaller paycheck this year? LearnVest gives you tips on how to cope with less income.
As we previously reported, the increase in payroll taxes that hit on Jan. 1 meant that workers making $41,000, the average nationwide salary, saw $64 less in take-home pay a month, translating to nearly $770 less for the year.
Related: How to Change Your Withholding
Whether it's taxes, a new job with lower pay, or just a good old-fashioned pay cut that's making you sweat, there are a few things you can do to soften the blow. We asked LearnVest Planning Services' Ellen Derrick, CFP®, to share some.
1. Reconsider What You're Paying For
Look for any nonessential deductions that might be coming out of your pay, and decide if you can go without them. "I often see deductions coming out of people's pay for things like Aflac or extra insurance that they aren't using," Derrick said. "I'm not saying that down the road you can't add these things back in, but if money's tight, you probably could use that cash in hand now."
Read on for more.
2. Change Your Withholding
Derrick suggests using a calculator, like this IRS one for 2013, to determine if you've been taking more money out for taxes each paycheck than you need to. "I've seen people getting huge tax refunds back at the end of the year because of how much they're withholding from each paycheck," says Derrick. "That's like giving Uncle Sam a 0 percent interest loan for a year. It would probably be better to receive that extra $100 per paycheck each month rather than waiting for $2,000 to come in April."
3. Cut the Nonessentials
Downgrading cell phone plans. Eliminating cable. Buying generic paper towels. Cutting your budget down to just the basics to save some cash can really help. "People don't think about what a difference there is between buying store-brand paper towels versus fancy ones, or buying generic food brands, but it really does add up in the end," says Derrick. She suggests going through your budget line by line and deciding where you can make cheaper swaps or, if possible, cut things out completely. (If you need more tips, try out our free Cut Your Costs Bootcamp, which will help you cut costs from every room in your home.)
4. Pick Up a Second Job
Whether it's tutoring, working in a retail store, or pet sitting on the side, picking up a small second job can ease the burden of a smaller paycheck. "There are plenty of things to do outside of regular daytime working hours, too," Derrick said. "Driving around delivering morning papers might not be glamorous, but it could easily fit into a work schedule."
5. Consider Downsizing
Typically a person's rent or mortgage is the largest big-ticket item in their budget. "If someone has been downsized or a family has lost one income, they should really think about whether or not that big expense is even doable anymore," says Derrick. This tip also applies if your budget was so tight before your paychecks shrank in January that staying within budget is turning into a tightrope act. If paying rent or mortgage payments is taking a huge chunk out of your smaller paycheck, consider getting a roommate, moving to a smaller apartment, or, if necessary, selling your house and moving somewhere with a more manageable mortgage. But, of course, don't forget to factor in the costs of moving, too.
At the end of the day, even small changes can add up to big savings, which can help cushion the blow of a smaller-than-usual paycheck.
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