At the end of last year, Congress hurried through a tax package.
One of the credits that was allowed to expire was the Making Work Pay tax credit. However, our representatives replaced the Making Work Pay tax credit with a reduction in the payroll tax paid by employees. This means that you should be seeing a paycheck that is a little bit bigger.
Our leaders, of course, want you to go out and spend that money, pumping it back into the economy. The whole point of tax cuts is to encourage you to spend so that we can keep the economy, which relies a great deal on consumer spending, moving in a direction of positive growth. However tempting it might be to spend that extra money, though, it is a good idea to consider how that money can help you down the road.
Here are some ideas for the extra money many people are seeing in their paychecks:
Retirement Savings Boost
A few extra dollars a month, compounded over time, can add up to an amount that is nothing to sneeze at. If you still have room to contribute to tax advantaged retirement accounts, perhaps you should increase your contribution this year. Since the money is taken from what you pay in Social Security tax, using the money to boost your retirement savings might be a good idea since you never know how solvent Social Security will be when it comes time to retire.
Emergency Fund Boost
Get a little closer to your emergency fund goals. Depending on your salary, the extra money in your emergency fund could help pay for car repairs, groceries, or other expenses. It never hurts to have a little extra in your emergency fund; it will prevent you from having to use debt to cover unexpected costs.
Try Out a New Investment
If you are itching to try out a new investment, or if you want to start an income portfolio, this extra money in your paycheck may be just what you need to kickstart your efforts. You can use the money to try an investment that you have been wanting to try, but didn’t because you couldn’t afford to lose the money. Or you could begin buying shares in a dividend paying stock (including using a DRIP) to begin developing an income portfolio.
You can also use the money to invest in yourself. Use the extra money to pay for web hosting, and other costs associated with starting a blog or web site. You can use the money to build up an online side business that could yield solid returns in the coming years.
Pay Down Debt
One of the best ways to stay broke is to carry debt. You can put your extra money toward your debt, making an effort to pay it down faster. If you are making $50,000 a year, you can expect an extra $1,000 in your pocket over the course of the year. That’s not bad when it comes to paying down credit card debt, putting extra toward a car loan, or putting a dent in student loans. Not only will you reduce your debt, but you will also be paying less in interest.