5 ways to stretch your paycheck further every month
There’s a beautiful expression that goes something like this: It’s not what you have, it’s how you use it! Many of us cannot make the jump from 5 figures to 6 figures, or 7 figures at the click of a button. It may be that we are in an industry that has a cap on earnings at our educational, skill and management level. Or it may be that we are in a depressed economy where wage growth is being eroded away by rising prices and a stagnant market. In any event, the objective is not always to earn more – it’s to do more with what you have. This contrarian perspective on how to live a better life with what is available warrants further attention. Here are 5 money management strategies to assist you in doing more with your paycheck every month.
1. Find out exactly what tax benefits you are eligible for based on your current earnings
Federal and state taxes are a major concern for income earners. If you don’t live in a state that has 0% income tax, you must worry about paying federal taxes and state taxes on your earnings. Fortunately, the tax system has been designed to assist people across the board. Tax credits are available if you have dependents in your family and this can greatly assist you in lowering your overall burden.
Additionally, there are ways to claim items as tax-deductible especially if you run your own business. For example, if you work from home, a part of your rental can be claimed as a business expense for your office. You may find it worthwhile changing your sole proprietorship to an S Corp to save on taxes. There are many ingenious ways that a tax consultant, attorney, or accountant can assist you in lowering your overall tax burden. Don’t be shy to tackle these issues because you stand to benefit from them.
2. Maximize your allowances
You may not be aware of this, but you are entitled to allowances in your household. The more allowances you claim on your income tax return, the lower the amount of income tax that will be withheld from your paycheck. If you claim less allowances, more income tax will be withheld from every paycheck that you earn. In the US, you must use the W-4 form to calculate and claim your allowance. As an example, if you’re married with no children, experts advise each partner to claim a single allowance on their tax returns. If you claim 2 allowances, too little tax will be withheld on your pay.
3. Be careful how you use your credit cards
One of the biggest traps that people fall into is overuse of credit cards. Just because you have credit facilities available to you, doesn’t mean that you should max them out. In fact, overuse of your credit facilities will negatively affect your credit score. It is a good idea to limit your overall credit usage to the bare minimum. Plus, the lower your credit utilization the lower the interest repayments on your debts. The last thing you want to do is pay extortionary interest on credit card bills.
4. Establish a budget and stick to it
A monthly budget is essential for many reasons. For starters, a budget allows you to know what money is going in and what money is going out. More importantly it allocates funding to individual components like education, healthcare, living expenses, entertainment, vehicle maintenance etc.
5. Pay your urgent bills first and pay yourself last
Conventional wisdom states that you should take money from your paycheck and put it aside for a rainy day. However, this seems disingenuous if you don’t have enough money to cover your bills. Your rent/mortgage, health insurance, water and lights, Internet, food and pet care are your primary responsibilities. Entertainment does not even feature if money is tight. If there is anything available after these bills have been taken care of, put some money aside. Remember: stick to a budget and make it work.