Helped by the Man: Letting pre-tax deductions work for you
As I might have mentioned once or twice, I tend to be a pretty basic type of guy when it comes to saving money. Essentially, I save money by not spending it. Having worked in academia for the past decade or so, I've found this approach to be pretty successful. To put it bluntly, I haven't made a lot of money, so I've tried to avoid spending a lot of money.
Unfortunately, there are obvious limits to this technique. Basically, things like food, transportation, health care, child care, and so forth tend to be deal-breakers. You can only skimp on them for so long before you find yourself walking ten miles to work, wearing rags, your kid slung under one arm, a thermos of ramen under the other, doubled over from a nasty, racking cough that used to be a cold but seems well on its way to becoming bubonic plague. As you trudge the miles to the office, it may occur to you (if you are a thinking sort of guy) that certain expenses are non-negotiable.
When that realization occurs, you might try taking a walk down to the Human Resources department in your company. Once you get there, ask the nice people about pre-tax deductions. Essentially, it works like this: you ask your employer to deduct some of your basic expenses before they pay you. Depending on your employer, these programs can include deductions for child care, transportation, health insurance, dental work, and optical care.
The most immediate benefit is that you don't pay taxes on the money you spend for these programs. Since you know that you're going to pay for them anyway, doing so before you pay taxes can save you a chunk of change. Many people already participate in these programs to some greater or lesser extent, but your HR representative can probably tell you about a few deductions that you've missed, saving you still more cash.
The other side of this is that, by deducting from your pre-tax earnings, you might actually ease your way into a lower tax bracket, greatly reducing your tax burden. In some cases, this can, essentially, give you your benefits for a fraction of the price that you're currently paying. For example, one person who I recently talked to has pre-tax deductions totaling approximately $160 per paycheck. However, because she has these deductions taken out before she is paid, she pays taxes at a lower income level. Combined with the reduced taxes on the expenditures themselves, the actual money taken out of her bi-weekly paycheck is only $70.
While savings may vary from person to person, most people could do with an extra $90 per paycheck! If you want to start saving now, ask your HR department about pre-tax deductions.
Bruce Watson is a former English instructor, sometime writer, and all-around cheapskate. A co-author of Military Lessons of the Gulf War and A Chronology of the Cold War at Sea, his work has appeared in The Journal of Speculative Philosophy, The Roanoker, The Brush Mountain Review, The Eccentric Monthly, The Best of Times, and College Daze. He currently blogs on Crankster.