If Your Employer Offered You a Raise Would You Take It?

Of course you would! Who wouldn’t? And in all likelihood it would be long overdue.

How would that raise in pay impact your monthly income?

Let’s consider an example. Assume your employer gave you a raise in pay of $250 per month. How much would you actually get to keep? All of it, right? Not so fast.

Your employer typically withholds about 30% of your gross income to cover your state and federal income taxes, state disability, Medicare, and Social Security. Thirty percent of $250 is $75 ($250 x 0.30). After taxes are taken out of your paycheck, you will net $175 ($250 – $75). You may have other monies deducted from your paycheck, such as retirement contributions and medical insurance premiums, but those amounts are typically pre-tax, voluntary, and for your direct benefit.

Would you still take the $175, even though you were given a $250 raise? Absolutely! You just might not be quite as happy about it. What if you could get a $250 per month raise and keep the entire $250? Would you take it? Again, of course you would! What if you could give yourself a $250 per month raise in pay? How about several $250 per month raises in pay?

Is there a difference between reducing your expenditures by $250 per month and receiving a $250 per month raise in pay? In terms of gross dollars the answer is no, but what about in terms of net dollars? We already established that the net dollars of a $250 per month increase in pay is $175. Let’s consider the net dollars of a $250 per month reduction in expenses.

Let me be clear that I am not talking about reducing or eliminating your budget for Starbucks or cutting back on your cable channels or anything like that. Those are lifestyle expenses and you should be able to enjoy the things that make the journey we call life a little more pleasurable. I’m talking about becoming more efficient with the money you already spend.

We find that people tend to lose money in the following areas:

1. How they choose to structure and pay for their mortgage
2. How they choose to pay their taxes
3. How they choose to save for retirement
4. How they choose to save for higher education
5. How they choose to pay for their major capital purchases

Let’s assume it is costing you $250 per month more than it could or should be costing you in one or more of the areas listed above and you could eliminate that $250 in cost, how much of that $250 would you get to keep? All of it? Yes, all of it!

However, consider this: To be able to pay a $250 expense you must first earn about $357 ($250 ÷ 0.70). After your employer withholds 30% to cover your taxes, you would net about $250 ($357 – ($357 x 0.30)). This means that a $250 per month reduction in your expenses is equivalent to a $357 per month increase in pay. It also means that the reduction in expenses is more valuable than a raise in pay because you receive the full benefit of the $250 increase in cash flow without an increase in tax liability.

Have you ever considered that improving your cash flow by becoming more efficient in your finances will have a greater impact on your household budget than a raise in pay?

If you had several areas in your financial profile where you were losing money when would you want to know? We want you to know immediately so you can keep more of the money you already earn.

Which do you think is more likely to occur for you?

• Get a raise at work
• Find unintended wealth transfers in your financial profile

The greatest impact you can have on your monthly cash flow is to identify any wealth transfers you may be making unknowingly and unnecessarily and take steps to minimize or eliminate them. We routinely improve our client’s monthly cash flow by hundreds, and sometimes even thousands, of dollars per month by finding the not-so-obvious transfers and doing just that, minimize or eliminate them.

If you would like us to help you identify the unnecessary wealth transfers that exist in your profile and devise a strategy and tactics to bring those dollars back under your control contact us to schedule a time to discuss your specific circumstances.