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The Tax Cut & Jobs Act is showing up in your paycheck.  It is not a one-time thing like the $1,000 bonus that some companies gave to their employees.  This tax reduction will show up every time you get paid.

I spoke to several people this week that have received an additional $90, $200 and $65.  It may not seem like an important change yet take a step back and look at the impact for the rest of 2018 and the years ahead.

Respectively these three people have $1,980, $4,400 and $1,430 to spend, save, invest, or pay down debt in 2018.

Five Actions for Your Pay Increase

  1. Create Financial Stability for yourself. A report from 2015 found that 43% of Americans don’t have enough money saved up to weather a financial emergency. In other words, 127.5 million people are one mishap away from joining the ranks of the 46 million Americans living below the poverty line.   (source: huffingtonpost.com)  Open an online savings account that is not at your main financial institution.  Why?  It creates a barrier to overspending from your regular checking.   Examples Ally.com or Capitalone.com
  1. Increase your retirement contribution. This has multiplier impact.  Increase your retirement plan contribution and you are increasing your net worth and saving more taxes.
  1. Payoff ANY Credit Card Debt. Credit card interest expense consumes a huge percentage of your cash flow.  Carrying a $10,000 balance with a 14.9% APR is like wasting $1,499 per year.
  1. Increase your mortgage payment. The change in the tax law eliminates the use of itemized deductions for a large percentage of taxpayers even when you have a mortgage and property taxes.  Take this additional cash flow and pay off your house.  This is another multiplier impact.  Every additional principal payment creates equity and reduces the future interest you will pay on your house.
  1. Invest in yourself. Use this additional cash flow to invest in your personal growth.  The airlines teach us a valuable lesson – if the cabin loses pressure take care of yourself before you take care of others.  Sign up for a class to increase your skills at work or join a yoga studio.  Investing in yourself has impactful returns.

What are you going to do with your tax cut pay raise?

Michael Tannery CPA, CDFA® AIF®

Registered Principal

Tannery & Company

Tax – Accounting – Wealth Management

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