(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.)