Before spring has sprung, remember that it’s not just the time of year to clean out your house, but also polish up your finances. One of the most overlooked areas of financial wellness is your paycheck. If you’re on autopilot, you might be missing opportunities to save more, reduce taxes and boost your retirement contributions.
Reviewing your paycheck every spring ensures you’re on track with your financial goals and taking advantage of key adjustments. Here are four timely paycheck changes to make this coming season for better financial health and long-term savings.
1. Withholding Settings
As part of your spring financial checklist, keep in mind that the income tax withheld from your paycheck is calculated based on your withholding settings. When reviewing your federal tax withholding adjustments and settings, consider factors like your filing status, the number of jobs you work and the number of dependents you claim.
One paycheck review tip, for example, is if your marital status changed in the past year, consider updating your Form W-4 to reflect this. Maybe you didn’t get married, but when you filed your income tax return recently, you owed way more than expected. The balance due may be because of incorrect or outdated information on your Form W-4. Taking the time this spring to ensure your withholding settings are up to date can save you a headache when it comes time to file your tax return again.
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2. Reallocating Deposits
When you think about your paycheck, your first thought is probably about how much you take home, whether you should make a retirement contribution increase or if you need to edit your health insurance deductions. However, another important consideration is where your money goes during your budgeting strategies for spring.
Most people have their paychecks directly deposited into their checking accounts. Unfortunately, leaving your money there typically doesn’t pay well. You likely move funds from your checking account to a savings or brokerage account with higher yield rates.
Take time this spring to make adjustments to the amount or percentage you move into either of these accounts to reflect changes to your budget or personal needs.
3. Tax-Advantaged Savings Account Contributions
Another place you can allocate your funds via paycheck optimization is to employer-sponsored tax-advantaged savings accounts like a 401(k), health savings account (HSA) or flexible spending account (FSA).
Spring is a good time to double-check your contribution percentages to these accounts, as you still have more than half of the year left to build up your contributions or even max them out. Remember, the maximum contribution amounts for these accounts typically increase annually to keep up with inflation. Therefore, the more you contribute to pre-tax accounts, the less taxable income you have.
4. Cost-of-Living Analysis
Typically, the things you need to maintain your lifestyle — like rent, food and transportation — get more expensive each year. Your paycheck should also go up annually to keep up with rising prices.
It’s a good idea to review your raise when you receive it to see if it keeps pace with inflation. If you haven’t done that, this spring is the perfect time to check. If you realize your rent has increased more than your raise, consider making adjustments like cutting spending elsewhere or asking for a higher raise to compensate for the difference.
Turn off autopilot and consider these paycheck adjustments you can make every spring.
Sean Bryant contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 4 Paycheck Adjustments To Make This Spring for Improved Financial Wellness
