I went shopping this past weekend, but don't the wrong idea. I didn't spend any money. With the recent payroll taxes increase that took a chunk out of our paychecks, I was back to my spending habits during the Great Recession. At that time, I felt reluctant to spend money because I wasn't sure if I'd lose my job. Now I just lost much of my discretionary money. I spend a lot more time window shopping and comparison shopping until I find the few items I can afford to buy or truly need.
According to a recent article by Reuters, a lot of Americans are feeling austerity's bite due to the payroll taxes rise. I noticed more people were shopping compared to the Great Recession, but I'm not sure how long that will last. It may take a few months of lowered paychecks before the average American realizes that more purchases are going on credit cards.
Assessing the injury
I'm sure some people only feel a slight pinch, while others truly notice the austerity bite. Experts say that when the temporary payroll tax cut expired, the taxes on wages rose by 2 percent. Compared to the austerity measures in Greece, perhaps many of us have nothing to complain about. Nevertheless, it's still frustrating to find out that we'll have about $300 less coming to us every month. After figuring out how deep the financial wound, I had to think about how we could remedy the situation.
Reducing our retirement savings
According to experts, the increase in the taxes will reduce household income by $125 billion this year, which is a lot less money flowing into retirement accounts, businesses and banks. I will save less money for retirement because I based my retirement savings on my take-home pay. If we aren't receiving as large of a paycheck, we won't be saving as much for retirement.
Finding ways to compensate
Because we recently refinanced our home to 2.75 percent, we will have a lower mortgage payment. Instead of having a $1,200 payment, we now owe $900 a month for the next 15 years. I'd prefer to continue to pay $1,200 toward our mortgage so it's paid off in 10 more years. However, it may not be feasible now that our paychecks are going to be smaller. Other ways we are making up the difference is by cutting out our gym membership of $75 a month and working out at home instead. We have also limited our visits to the coffee shops because that $300 a month translates into $10 a day or the average amount I spend when my son and I stop at the coffee shop.
In many ways I feel as though it's wrong to use the word "austerity" when referring to the aftermath of the payroll tax hike. We still have it good in America. I don't want to take our high standard of living for granted. I don't mind being a little frugal so that we can continue to live the American dream of owning a home and having enough money left over at the end of the month to sip a gourmet green tea.
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