T
his new year marks the start of a decrease in the social security tax owed by the employee. That means if you receive a paycheck, chances are you will see 2% more in your check starting the first check of 2011 than you did the last check of 2010.
Many think this is good news, and it is. Let’s face it two percent is two percent every little bit helps right? What is two percent? If you make $60,000 a year that two percent is about $1,200 for the year, before income tax that is, or around $100 extra a month.
Now is the time to make a plan for that extra money. I recommend putting that extra money right into the bank as savings. Since you weren’t planning on it anyway why change the way you are living and start living off the extra two percent. Instead save it. This is a perfect time to start the habit of saving every month and there is no better way to save than with money you didn’t think you were going to get.
I have a two reasons for recommending you save this money rather than adjusting your lifestyle and start living on it. First, chances are you are not saving on a regular basis. By regular I mean you take money from each and every paycheck without fail and place a percentage of it into savings. It is so very important to pay yourself first, actually I really believe in paying God first with your tithe but that is for a different article. I see clients all the time who don’t save. You should have a minimum of $1000 in the bank at all times. Actually in this day and age, I really recommend $2,500 in the bank. That money is there solely for emergencies. That way you won’t have to charge that “emergency” on a credit card. That doesn’t mean once you get $2,500 in the bank you can stop saving, no not at all. Keep saving regardless of what you have in the bank…save this two percent.
My second reason for this recommendation is the big one. This two percent social security tax reduction has only been put in place for one year. One year only. That means, your first paycheck of 2012 will be less two percent or in my example above less $100 each month. Now if you start making a habit of living on this extra $100 each month this year, come next year, when Uncle Sam increases the SS tax back up two percent you not have enough money to live on from your increased lifestyle change.
Yes, you got a two percent raise continue to live like you didn’t get it. Put the money in savings, so in January 2012 you won’t come up short each month from the reduction in pay. An ounce of planning now will equal a pound of headaches in the future.
