What pay raise? you might be asking. Well, unless you've been living under a rock, you've probably heard that the tax cut bill was signed into law today. Regardless of your feelings about it, it will impact you. Here's a great article with all the details, but I'll summarize why it's a pay raise for most folks for 2011.
Let's assume you are single with no kids and make $50,000 a year, mostly because it results in nice round numbers. Your social security payroll withholding will be reduced by 2% for 2011 only, giving you an extra $1000 ($50,000*.02). The Making Work Pay tax credit expires at the end of this year, which in this scenario was $400. Thus, your net pay raise is $600 a year or $50 a month.
Big deal you might say. That's fine. If you don't want it, give it to me. Send me an e-mail, and I'll provide you an address so you can mail it to me.
If however you want to use it for something that benefits you personally, here are a few ideas:
* Need to beef up your retirement savings? Up your 401(k) contribution by 2%
* Emergency fund feeling a little anemic? Figure up how much additional money you are getting each check, and have that put directly into your savings account.
* Car going to need new tires by the end of 2011? Set the money aside for this purchase so you'll have all or most of it ready when the time comes.
* Want to blow it on something frivolous? If you don't have another pressing need, go for it!
The idea is that you need to PLAN where the money goes now. It's too easy to say "I'll think about it when I get the money", then find at the end of 2011 that you have no idea where it went. Granted, the government is pretty much hoping you'll do that, but as we all know, the government is not the best fiscal manager to emulate.
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