Article by Elizabeth Ingram
Vice President of People Strategy, CU Insurance Solutions
There are several situations that may warrant readjusting your budget: salary changes, benefit renewals, life changes (marriage, divorce, addition of a child, moves, etc.), and the start of a new (tax) year. Having a written budget that details your monthly income and expenses is a big help, but there are other considerations to keep in mind.
Dependent children, childcare, charitable deductions, and medical expenses can all impact what you pay in taxes. To get a rough idea of what you’ll owe in taxes for the year, you can visit the IRS Withholdings Estimator (Tax Withholding Estimator | Internal Revenue Service (irs.gov)). It isn’t available until early in the current tax year and you will need pay statements for yourself (& your spouse if you jointly file), but the 10 minutes you spend can help you maximize your income while minimizing your out-of-pocket expense at tax time. Go back and rerun the numbers when you have changes (including any bonuses you may receive).
When your benefits renewal occurs, you may see increased costs for your medical, dental, vision, life, or other coverage. If you have a tight budget or like to plan ahead, keep in mind that what you pay in insurance premiums is often (but not always) pulled from your salary before taxes. Pre-tax premiums decrease your taxable income, so the decrease (or increase) in your take-home (or net) pay isn’t the same number as the premium cost. Post-tax premiums are pulled from your salary after taxes and do come out of your take-home pay at the same number as the premium cost. If you aren’t sure whether your premiums are pre- or post-tax, check with your HR department.
HSAs and 401Ks
Additionally, keep in mind that some benefits such as HSAs and 401ks have maximum contributions which increase each year. If you intend to maximize your contributions to this sort of benefit, be sure to take into account the increase each January.
Lastly, try to put some space in your budget to pay yourself (savings are hugely helpful when the unexpected occurs) and for any other priorities you may have for 2022.