How to Make the Most of Your Paycheck In 2013

Whether you followed the ‘Fiscal Cliff’ coverage or not, you’ve undoubtedly heard about, or will feel, the impact of higher taxes in 2013. As of January 1st, the two-year old Payroll Tax Holiday has expired.  To help stimulate the economy, the government had reduced the payroll tax rate during the last two years from 6.2% to 4.2%. However, those cuts weren’t preserved in the fiscal cliff bill recently passed by Congress.  The rate increase will affect each of us differently, but one thing is for sure – we will all bring home less money every month in 2013.  What can you do to make the most out of your paycheck?  We’ll show you.

First, let’s take a look at just how much less we’ll be bringing home in the New Year.  The 6.2% Social Security rate will be applicable to annual wages up to $113,700, thereby impacting many low and middle-class individuals. For someone making $30,000, they’ll now take home $50 less per month, or $600 annually. If you’re making $50,000, you’ll take home $83 less per month or just under $1,000 for the year.  Finally, if you’re earning $100,000, you’ll have lost $166 a month, which is approximately $1,900 less for 2013. IF you’ve been budgeting, you’re at an advantage when it comes to creating a strategy to offset these cuts.  You’ve already prioritized your expenses and know where the cutbacks can come from. However, if you’re among the millions of Americans living paycheck-to-paycheck, this could be a rude awakening.  Overall, economists estimate the return to the old payroll tax rate will reduce American’s disposable income by $115 billion, curtailing spending significantly for the first 6 months of the year. Unfortunately, smaller paychecks are just one financial concern to consider in 2013.

This year we’re also likely to see increases in many of our day-to-day goods and services, such as groceries, healthcare, smartphones, and paid TV subscriptions.  Due to last summer’s drought, many ranchers reduced the size of their herds to offset soaring feed costs. As a result, meat, poultry, and dairy prices are predicted to increase. On average, we should expect to pay 3.5% to 4% more for these items in 2013.  We’ll experience similar increases for cereal and bakery products because of lower wheat yields.  The USDA’s Economic Research Service forecasts that the costs of these products will rise 2.5% to 3.5% this year.

It’s also likely that we’ll see higher costs for health care.  On average, prices will increase by 6% in 2013.  These increases will vary from state to state, and by the type of plan your employer offers, but economists believe these costs will be passed along, in part, to employees. We’ll also see increases in smartphones as service providers are moving away from subsidizing the cost of their phones. Providers are expected to sell handsets at their full market price, and offer lower cost service packages.  Finally, we’ll see increases in cable and Satellite TV services.  It’s expected that subscriptions will increase by about 4.5%.

The combination of decreased income and higher costs will cause many of us to struggle in 2013, but you may be able to make some spending adjustments to help compensate.  One of the best ways to increase your income is by adjusting your IRS withholding.  Sure, you may get back a big return, but that money can do far more good in your paycheck.  In 2012, the average refund was $2,700.  Over the course of the year that’s approximately $50 more in a weekly paycheck. Being mindful of your spending will go a long way in the New Year as well.  By cutting back on snacks, high priced beverages, and making your own lunch, you could save about $200 a month. Also, refrain from using your credit cards or mobile device for purchases. It’s far easier for us to overspend when we’re dealing with plastic or digital purchases versus taking money out of your pocket. To help keep an eye on your expenses you can use a budgeting app, similar to those from Mint or LearnVest.

While we’re on the subject of digital devices, you should also be mindful of your data package usage.  Many cell phone or tablet service programs allow us between 5GB to 10GB of use each month.  When we go over, we’re charged higher fees.  If you’re in the habit of downloading or streaming a lot of content via your device, switch to WiFi to reduce the likelihood of exceeding your monthly usage.  These are just some ways that you can save, but we’d like you to share your savings tips in our comment section. Tell us how you plan to save in the New Year.  Until next time, I’m Thom Fox for Cambridge Credit Counseling.


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