How to Get More of YOUR Money from Your Employer

02/4/08 posted by Prosper Blog

(Editor’s Note: This is a guest post by Prosper Member Colton L. You may want to consult a tax advisor before acting on any of these suggestions. Your situation is unique and these are generalizations.)

You (1 person) are making the average American salary of approximately $36,000 which is $3,000 a month. But what you are really taking home is much much less. After federal and state taxes and Social Security and Medicare, then your employer takes out heath insurance (if you qualify for it). You might have an employer match 401(k) that takes more away from your take home pay anywhere from 3%-8%

There are two easy ways to get more of your money. The first one is for only when your mortgage rate has gone up. If you are caught up in an ARM (adjustable rate mortgage) and the rate has increased, this solution might be for you. Back when you started your job, you had to fill out your W-4 which told your employer to take out this much for taxes. For example, if you are married and have 2 children your with holdings might be 3. Since mortgage interest is tax deductible, and your ARM has increased you will be deducting more taxes and have a higher refund. What you can do to get “your” money faster is increase you’re withholding by one increment up. So if you claim 3 you would claim 4. These changes are not breaking any tax laws, but remember that you will still be required to pay income tax on the money you are getting since you increased your withholding. This is when you will get your W-2 in the mail within a couple of weeks. The money change you will see will help increase your net pay

The next change you can make is to lower the proportion going to your 401(k). You might be asking yourself why a finance guy would be telling you to lower your contribution rate. The best advice is not to borrow from your 401(k). Just lower your contribution rate. There are other situations that may call for drastic measures like that. Well if you are going to lose a $150,000 of real estate does it really make sense to have 6% of your pay saving for retirement, when you might lose your home. No, this is only for the meantime. This is only to help for 6 months to a year, any longer than that you might need to get better financial help to your individual needs. Six percent of your income right back into your pocket. After taxes you still will get about 3.8%, but if you also do step one it will be about 4.5%. With these little changes you might see a little bigger pay check.

(Editor’s Note: A 401K with a match is like getting free money. Again please consult a tax advisor before acting on these suggestions. If you are facing foreclosure, the 1st thing you should do is find a good attorney.)

Posted in Personal Finance Education, Prosper Lenders

4 Responses

WealthBoy | February 4th, 2008 at 8:31 am

These are definitely some good ideas for improving monthly cash flow. Be sure that if your employer does provide a company match on your retirement plan, you try to maintain your contributions to at least the maximum amount they will match. For example, my employer provides 100% on the first 3% of salary contributed and 50% on the next 2% of salary contributed. Although it is a bit confusing, many employers state their contribution amounts in a similar manner. Basically it means that if I put in at least 5% of my salary, the company will match 4% of my salary in the retirement account. I would never drop my contribution below 5% of my salary, because I would be giving away free money.

Jeremy | February 4th, 2008 at 10:07 am

The W-4 adjustment is often overlooked, yet it is the single easiest way to put more money into your pocket. Understandably, people love getting tax refunds every spring, but this is wasteful as you’re simply reducing the amount of take home pay unnecessarily.

Some argue that this is good because it basically forces people to save, but I find this is rarely the case with many of my clients. Most anticipate their hefty tax refund so they can blow it on some big purchase, take a vacation, or otherwise find a way not to save it.

You’re far better off adjusting your withholding so that you will receive a much smaller refund, and then set up automatic deposits into your savings each month or each paycheck.

For example, if you typically get a $1,200 refund each year, change your withholding to be more accurate, and make $60 of each bi-weekly paycheck go into savings or your IRA. You’ll still feel like you’re bringing home the same amount of money as before, but now you’re actually earning interest and building wealth instead of letting the government sit on your money for a year only to give it to you later so you can waste it.

Jeremy | February 4th, 2008 at 10:09 am

I meant to say $50 per paycheck in the post above to make the numbers more accurate, but doing 10 bucks more won’t hurt either