According to an article published by CNN Money, Americans are spending less money due the recent increase in taxes. Workers have seen their taxes increase and paychecks decrease by 2% since the payroll tax "holiday" was allowed to expired in January 2013. The percentage went from 4.2% to 6.2%, which means people making $100,000 a year saw a pay decrease of around $2,000 a year.
As a middle class family that earns around $50,000 a year we are set to lose $1,000 over the course of a year. That is enough to make two mortgage payments, or to pay our gas and electricity bill for five full months. My initial reaction to the news that my husband's payroll taxes were increasing was to panic. I wasn't sure how we would make up the difference, but being who I am I went straight to my budget to find the funds. Much to my surprise, some recent changes in our finances had unknowingly prepared us for the tax increase. Here are some of the reasons we will not have to adjust our spending because of the tax increase.
Paying off old debt
After purchasing our first home, my husband and I set out to reduce our overall debt significantly. We focused our efforts on paying off our auto loan and the balance on his credit card. We paid additional money toward our auto loan every month for six months, and were able to use our federal tax refund to pay the remaining balance in full. Eliminating that loan will save us no less than $310 a month.
In addition, we are only a couple of months from paying off the balance of his credit card, which will free up an additional $100 a month.
Going on a diet
I've never been a fan of New Year resolutions, and I especially avoid diet and excise related resolutions; however, New Year 2013 brought about a major lifestyle change for our family. My husband and I decided we wanted to change our relationship with food in order to get healthier. The first thing we changed was the number of sodas we drink each day, and in the end, it saved us $12 a week or $624 a year on soda alone.
All told, these two changes will save us a total of $4,344 a year, which is over $3,000 more than we lost due to the tax increase. Even though we didn't make these changes because of the tax increase, they will ease the financial strain the higher taxes would have put on our budget. If you find that tightening your purse strings isn't helping to ease your tax pain, it's a good idea to start looking for other ways to eliminate excess debt.
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