Your Paycheck After Taxes: 7 Ways to Stretch It
Do you remember your first payday? It might have been from your job in high school, and it was time to collect your first-ever paycheck after working for two weeks. You opened it (or logged online) to see that glorious number — but thanks to taxes, it was less than what you expected when you multiply your salary by the hours you worked.
Taxes vary by state, but in Mississippi, the state with the lowest median income of $45,792 per year, residents who earn that amount only walk away with $36,989. That’s $8,803 they could have used on other expenses.
Don’t get us wrong, taxes are essential. They fund education, roads, libraries, parks, and countless other government programs. However, while it would be nice if wealthy people were taxed at higher rates to take the burden off of people who earn less, that is not the case. Many people in the U.S. are left living paycheck to paycheck once taxes are deducted from their income. If you are one of those people who doesn’t have leftover cash to save once your bills are paid, here are a few ways to stretch your paycheck after taxes:
Keep Track of Your Budget
The first thing you should do to avoid overspending is to establish a monthly budget. What are your expenses, and how much do they cost? Keep track of everything in a spreadsheet, or use an app like Mint to make it easier. Pay attention to where your money goes. If you are spending too much on unnecessary things, you know what habits you need to eliminate. Remember to save some emergency cash so you aren’t stretched to the point of breaking if a crisis arises.
Don’t Pay Unnecessary Fees
Ideally, your entire paycheck would go toward essential expenses, savings, and recreation — not fees, which can accumulate over time. Some fees are unavoidable, but the right precautions can spare you from paying charges like overdraft or late fees. Freeing yourself from such costs helps you stretch your monthly income further.
For example, using apps like Earnin helps you avoid late fees if your pay cycle doesn’t align with when your bills are due. Don’t enable overdraft protection if you don’t want to be stuck with an extra $35 for overdrawing your checking account, and only withdraw cash from your bank’s banded ATMs.
Claim Your Deductions
When tax season rolls around, make sure you get your maximum return by taking advantage of whatever deductions you can. It’s best to consult with an accountant or a tax expert, but it never hurts to research unique deductions that even they might not be aware of (did you know that, in some cases, you can deduct the cost of a babysitter?).
Adjust Your Withholdings
If you receive a significant tax return each year, your employer withholds too much from you in taxes. Request a new W-4 form so that you can adjust your tax withholdings and keep that money for yourself throughout the rest of the year. To repeat, this tip is only for people who receive large tax returns each April — you don’t want to end up owing a bill instead.
Don’t Take On New Debt
We’re talking about stretching your paycheck after taxes here, not your credit limit. Don’t take on new debt if you can avoid it. A new credit card or loan is not necessarily the answer to your financial problems. Be wary of taking on debt as a means to pay off your existing obligations — it’s still debt that comes with interest you will inevitably need to pay off.
Do as Much as You Can for Free
Everyone needs leisure time and recreational activities. Enjoying such things with your loved ones is supposed to be why you work a job in the first place. If the entirety of your paycheck goes toward expenses, though, then take advantage of as many free opportunities as you can. Check out books from your local library. Spend time with your family at a park. Attend public movie nights instead of going to the theater. There are more ways to have fun for free than you realize.
Share Costs With Others
You don’t have to do or buy everything yourself. If you and your family, friends, or neighbors all need to stretch your paychecks as far as they can go, then band together as a community and take care of each other with whatever resources each of you has access to. For example, does someone have a discount they could share? Could you save money on gas by carpooling to work or school? Splitting expenses and labor with people could reduce the amount of stress you’re under.
It might be tight, but if you plan carefully and take advantage of resources available to you, there are ways to make sure your paycheck stretches far enough to cover what you owe.
Please note, the material collected in this blog is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or Services.