How to give yourself two raises
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Getting a raise is a big deal. It's more money in your pocket, but it can also mean more in taxes.
Generally, the more you make, the more you’ll owe Uncle Sam. It’s a simple fact of life. We’ve even heard of some people who turn down bonuses because they’re scared of the tax burden. Here’s a tip: Don’t be that guy.
Now, I'm not belittling raises. After all, how else are you going to keep up with inflation? The rising cost of living -- rising rent, groceries, gas prices, you name it -- is a problem for everyone. But what if there was a way to give yourself a tax-free raise?
Well, there is. The secret is cutting expenses. That's right -- cutting.
While you might think making more money means you get to spend more – something often called lifestyle creep – it’s actually a great opportunity to cut back. You got a raise? Great. Now find one expense to cut out completely -- or at least reduce -- and you can maximize those gains, doubling the power of your raise.
Do the math
Feeling rich after that 3% raise? Probably not. But what if you found a way to shave just $100 off of your monthly expenses? That's $1,200 a year.
If your effective tax rate is 30% --- stay with me here --- you would need a raise of almost $1,600 in order to actually get the equivalent of an extra $100 a month coming in.
Where to cut
One area to save is one of your biggest expenses: your rent. If you move to a cheaper apartment and cut your rent expense by just $100 a month, you’ll be all set.
Reducing your rent by $100 a month is effectively the same as increasing your income by $100 a month. Of course, you’ll have to spring for pizza for your friends to help you move, but that shouldn’t eat into your new savings too much.
Now, if moving isn’t an option, how about curbing that latte habit? Spending $5 a day on coffee? If you cut it out, guess what that equals? $100 a month.
See how the slightest change of thinking makes cutting your expenses all the more attractive? If you can get a raise at your job and also cut your expenses, you can score not one but two raises.
Follow Scott Gamm on Twitter.
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