January 4, 2011
#2 - A Tax Cut That Can Build Your Net Worth
While one road to financial freedom is to spend less, the other, parallel road is to save more. Effective this week, every working American got a tax cut. It doesn't matter what tax bracket you're in or how much you make. Every worker pays Social Security taxes of 6.2% from their wages (If your wages exceed $106,800 you do not pay the 6.2% on the excess). This year the tax has been reduced to 4.2%, so for every $1,000 of wages you will get an extra $20 that will not be deducted and sent off to Washington. For a person earning $40,000 a year, the tax reduction works out to about $800 - like getting a 40-cent per hour raise. For someone earning $100,000 the saving will reach $2,000. This math applies to each wage earner in the household, so both members of a working couple get this benefit, doubling the value for the household.
Now, twenty bucks a week can go fast - gas in the car, movies tickets plus popcorn, you name it - and for many people that twenty bucks will never get noticed, it will just end up part of the background and get spent. A little work now can have you $500, $1000, or $2000 richer by year end. But don't wait. The easiest and best way to save that tax cut is to increase your retirement plan contribution. If you have a 401(k) or 403(b) at work, increase your contribution by 2 percentage points. If you put in 5% now, increase it to 7%, or whatever your numbers work out to. You will never miss that little extra, and the balance in your account will grow much more quickly. If you don't have a retirement plan at work, we can help you set up your own account.
Concerns about the solvency of the Social Security system are not going to be assuaged by this tax cut - it may actually weaken Social Security. But that is a national issue of long term concern. You're getting extra money today - use it wisely.
Next: #3 - Pay Down Your Smallest Debts First
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).