4 Steps Essential to Maximizing Your Income in the New Year
In four steps you can bring more income into your household and begin to transform your financial life.
When learning to live your best financial life, you may automatically think of where to cut your spending, or reducing the “latte factor,” as super-selling author David Bach likes to describe. These are the small purchases that you make in a month that when redirected to savings can start to build wealth.
But what if I said that before looking for those spending leaks in your cash flow that you work on trying to maximize every dollar that comes in? That’s what we are going to do in today’s post. Here are 4 steps essential to maximizing your income, in the New Year and beyond:
1. Create More Income Through Your Paycheck
What is the difference between gross pay and net pay? One of my colleagues likes to call gross pay the “fantasy” while net pay is the “reality.” But what if you could wave a magic wand and make that “reality” number rise? You may be able to, no magic wand necessary. Sit down with your paystub and take a good look at it. First, check your W-4 allowance. This is the number that indicates how much income tax your employer is taking out of each paycheck. If you tend to receive a large tax refund each spring you can choose to increase this number by one. Sure, your tax refund may get a bit smaller but each paycheck will get a bit larger! Check out the IRS Withholding Calculator. Also make sure that you are utilizing your before-tax deductions such as retirement accounts, health insurance, flexible spending accounts and public transportation accounts. While yes, these deductions will shrink your pay, they will also save you in taxes at year end (at least for now before the new Tax Act gets going).
2. Take Advantage of Deductions and Credits at Tax Time
As I type this post Congress is up on Capitol Hill finalizing a big piece of tax legislation that is going to impact all of us in the coming years. But until the ink is dried on the paper take advantage of these federal income tax deductions and credits:
a. Mortgage Interest Tax Deduction: You can deduct the amount you pay in mortgage interest from your taxable earnings
b. Student Loan Interest Tax Deduction: You can likewise deduct up to $2,500 in student loan interest from your taxable earnings
c. Earned Income Tax Credit (EITC): This is a refundable federal income tax credit (meaning you get the money even if you have no tax obligation) for working households making up to $53,930 a year (in 2017)
d. American Opportunity Tax Credit: This helps families pay for the first four years of post-secondary with a tax credit of up to $2,500
e. Lifetime Learning Credit: This offsets the cost of post-secondary education with tax credit of up to $2,000
f. Child and Dependent Care Credit: This helps defray childcare costs so that you can work with a credit up to 35% of qualifying expenses
g. Child Tax Credit: This is a tax credit of up to $1,000 for each qualifying child
3. Take Advantage of Local Resources that You Qualify For
There are a lot of folks out there like you who are working hard to eke out a living and to provide for their families. And they might not know that there are resources available to help them with their monthly expenses. From child care subsidies to home heating fuel assistance to food assistance there is help out there, but you must look for it and apply! Visit https://www.benefits.gov/ or http://www.211.org/ for more information. And keep in mind that many public benefits are paid for with your tax dollars. You paid into these programs and you have the right to receive these benefits if you qualify.
4. Create More Income Through a Side Hustle
I am a big fan nowadays of Chris Guillebeau and his Side Hustle School. The premise of Side Hustle School is not to quit your day job and wrack up a bunch of debt for the sake of an all-in entrepreneurial pursuit, but instead to take one idea and put it into action in your off-hours to create more income and freedom for yourself. From ideas as simple of selling your stuff to renting out an extra room to pet sitting, you can create another stream of income that can improve your monthly cash flow.