Recently, there has been talk of major tax increases come January 2013, and it has me riling. It can be difficult to keep my family's finances on a working budget, but for the last several years I've managed it fairly well. There are always things that come up that require me to reallocate our funds, which can be complicated, but it is manageable. However, if the tax breaks expire we could see as much as a 6.2% decrease in our net income, and I'm not sure our budget can absorb such a large loss. Here is more about the tax cuts, how it will affect my family, and what I'm doing to prepare for the end of tax cuts.
The cause of the possible increase
Between 2001 and 2003 Congress passed tax cuts that President George W. Bush wanted to see implemented, and those cuts were due to end in 2010; however, President Barack Obama struck a deal with Republicans to keep the tax cuts in place until 2013. That means if Republicans and Democrats can't come to an agreement before January 1, 2013 the tax cuts will expire, and millions of families will see their taxes increase.
What it means for my family
It's projected that our taxes could go up by as much as 5%, and that would result in a 6.2% or about $3000 decrease in our yearly income. A decrease of that size would mean we would have to find a way to cut $250 a month from our budget, which isn't something that will be easily done.
What we will have to do to cover the loss
The easy answer to covering the loss would be to take it all from savings, but that isn't practical because we have to save for emergencies and the future. So, I have to look for ways to make cuts. These are some of the places we will be forced to make cuts if our taxes go up.
- Cable television: We spend $35 dollars a month for cable and it's something we can live without so it would be the first thing to go.
- Change phone plans: Our service provider offers several smaller minute plans, one of which would save us $20 a month.
- Lower our entertainment budget: We currently budget between $150 and $200 a month for entertainment, and will cut that by at least $50 a month.
- Lower savings: The remaining $145 will come from our monthly savings, which means we will have to cut our savings by 29%.
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