The new year is almost upon us, and that means it’s time to revisit our budgets. Though much is still uncertain when it comes to taxes, it is looking extremely likely that all of our paychecks will shrink at least a little bit next year.
The most likely change is the expiration of the payroll tax cut, which will add 2% to every employee’s tax bill. There hasn’t been any indication that this tax cut will get extended, so you can be reasonably certain this will affect you starting January 1, 2013. The average American family will see their take-home pay drop $1000 next year.1
And then if the Bush tax cuts are allowed to expire, our paychecks will be even smaller. The current 10% bracket will go away, making the lowest bracket 15%. The 25% bracket will go to 28%, the 28% bracket will go to 31%, the 33% bracket will go to 36%, and the 35% bracket will go to 39.6%.2
With all the various tax cuts that are set to expire, the average American family will be paying an extra $3500 in taxes next year.3 We’re racing quickly toward the end of 2012 and no resolution has been reached yet, so we may as well plan for the worst. $3500 per year equates to $291.67 per month.
So what can we do so we won’t miss that $291.67 each month?
Downgrade or eliminate Your TV service
Last year, consumers paid an average of $86 per month, and service costs are set to rise on average 6% per year going forward.4 With all the free and low-cost options for watching TV shows and movies, it’s pretty hard to justify paying $86 each month. Hulu is completely free and has tons of TV shows. You sometimes have to wait a week after a new episode is aired to watch it online, but I think a little patience in exchange for $86 more in your pocket each month is a pretty good exchange.
If you love having your TV service and don’t want to get rid of it, at the very least call your service and try to negotiate a lower rate. In full disclosure, my fiance and I won’t be getting rid of our TV service next year (we currently pay $51/month), but we may give DirecTV a call and see if we can get that any lower. I’m still waiting for the day that a TV service provider lets you hand pick only the channels you actually watch, so you’re not paying for a bunch of channels you couldn’t care less about.
Ditch the smartphone
When you factor in all the costs associated with smartphones, including the device, service charges, taxes, and fees, the average cost for owning a smartphone is $3400 over two years.5 That’s a shocking $141.67 per month! I know we’ve all become attached to our smartphones, but with less money in our pockets next year, it might be time to reconsider whether we really need these devices. Take the next month to really analyze your smartphone usage. Are you getting significant value from your data plan, or are you just using it to check Facebook from your couch instead of walking over to your computer? Be brutally honest with yourself. It might be difficult at first, but most people could get by just fine with a dumb phone.
There are some other options to reduce the cost of your bill a bit if you’re not ready to let go of your smartphone. If you use your phone for work, but are still paying for it yourself, see if your company will pay your bill for you. At the very least your company may have a relationship with a cell phone service provider and can get you a discount on your monthly bill. You should also take a look at your usage and make sure you’re not paying for more minutes/texts/data than you’re using. You should also make sure you have enough minutes/texts/data so you’re not paying for overages.
Eat less meat
It’s not dinner unless there’s meat on the plate. This belief costs me a lot of money, sadly. My fiance and I are both big meat lovers, which helps contribute to our relatively high grocery bills. I do most of the grocery shopping, and I spend roughly $300/month on food for the two of us. We’ve already started eating smaller portions, which is a great help, but we could save even more money if we had a meatless meal a few times a week. Another good strategy to save on meat costs is to mix your meat in with pasta, beans, rice, or salad instead of serving a slab of meat next to a couple side dishes. This will help you use less meat without noticing that you’re having less of it.
Take care of your valuable assets
When money is tight, you may be tempted to skip maintenance on items that seem to be running fine, such as your car. As I learned from my first car ownership experience, when you skip regular maintenance, you’ll eventually hit a point where a whole bunch of parts wear out to the point that your car starts vibrating when you drive and undue stress is put on your vehicle, damaging even more parts. If you wait until that point to go to the shop, you’ll be hit with a $3000 repair bill. Regular maintenance will ensure that parts get replaced when they start to wear out, so your costs will be spread more evenly, and your car will stay healthy.
Downgrade your vacation
If you typically go on vacation every year, you may want to look for cheaper options next year. Instead of flying to Hawaii and staying at a resort, are there any beach towns within driving distance where you could rent a cottage for the weekend? Instead of a European vacation, consider a cheaper location in Asia or South America. I know many disagree with me, but I think the most important part of a vacation is the mere fact that you’re getting away, not where you’re getting away to.
Go local for entertainment
If you like to go to professional sporting events, concerts, or shows, you know that ticket prices are absolutely ridiculous. The fortunate thing is there are a seemingly infinite number of people who are aspiring to be professional athletes, musicians, and actors, and you can watch them for a whole lot less than their professional counterparts. Instead of going to a professional football game, go to a local college game. Instead of a concert at the Philharmonic, look in your paper for amateur concerts. And while the national tour of Wicked is sure to delight, you can get a great theatre experience at a community theatre for a fraction of the cost.
You can also look for volunteer opportunities that will allow you to go to amateur events for free. Professional events have paid ushers and ticket scanners, but amateur events are often looking for volunteers to fulfill these duties, who are then able to watch for free. Call the box office and ask if they’re looking for any volunteers to learn about opportunities.
Earn more money
If you’re already doing a lot of these things and don’t know how you’re going to be able to manage having $291.67 less in your paycheck each month, it may be time to look for additional sources of income. The first course of action is to ask for a raise at work. If that proves unfruitful, you can look for temporary solutions such as selling some things on eBay or participating in paid research studies at your local college. You could also start up a side business in your free time. Some businesses have a lot of overhead costs and involve a lot of risk, but if you’re just looking to pick up a little extra money, there are plenty of options with practically no start up costs. One of my friends recently started a pet sitting business, for instance. You could also teach sports or music lessons if you have the relevant skills, or set up a tutoring business out of your house.
What are you doing to prepare for your shrinking paycheck in 2013?