Objective of the Step:
Increase your take home pay and make more money available for expenses.
To accomplish the objective, you need to review each item of income listed on your Budget Snapshot and make decisions about each one.
Reviewing your income actually consists of two parts;
- Review the money you actually take home and try to maximize it
- Review all your deductions that reduce the money you take home and try to minimize them.
Some of the topics you should cover in your review are:
1. Gross Pay
Ask yourself if there is any way to increase your gross pay (this is your pay before any deductions). This may include a raise that you are due, additional work hours, a second job or increasing hours in your second job. Do this for all members of the family who contribute to money for your expenses each month.
2. Revise your W4 (usually available from your Human Resources (HR) Department) or online at IRS W4 or https://www.irs.gov/pub/irs-pdf/fw4.pdf You should complete a new W4 each year and give it to your HR Department. This may help increase your take home pay by reducing your deductions in the following areas:
Federal Tax Deduction
State Tax Deduction
Local Tax Deduction
3. Insurance Deductions
Review any Insurance deductions from your pay with your HR Department. There may be better options than what you currently have. This should include the following:
a. Section 125 Pretax deductions
b. Health Insurance
c. Dental Insurance
d. Vision Insurance
e. Life Insurance
4. Savings, Pension and Retirement Deductions
a. These are deductions that should be reviewed annually to determine if you can increase or need to decrease them temporarily.
b. If you have a Savings deduction, this money is always available to you so there is no reason to change it.
c. If you have a Pension deduction, talk to your HR Department about it to see if you can decrease (or increase) it. Whether you increase or decrease it depends on your personal situation and whether you need extra cash to help balance your budget.
d. If you have a Retirement deduction (such as a 401K or a 457B), the amount you put into this is entirely up to you. We recommend putting the maximum you can in this because you will need it later in life. If, however, you need the money right now to help balance your budget, decrease this deduction temporarily.
For much more detail about this review step and how to do the reviews along with many tips, consider the second book in the Money Action Plan series, titled “Keep More of What You Earn”.
Now, go on to Review Your Expenses