What the 2018 Tax Reform Means for You

Have you noticed a slight bump in your paycheck yet? You can thank the 2018 tax reform bill, officially known as the “Tax Cuts and Jobs Act,” that took effect on January 1, 2018. According to USA TODAY, 90% of American workers should see a decrease in federal tax withholding resulting in more take-home pay. 

So what will you do with your increase now that you know about it? There are ample, yet very simple, options to think about. Let’s highlight a few.

Give / Increase Giving
What if you were to give to your church or favorite charity for the first time, or increase what you are currently giving? There’s an old saying which says, “We make a living by what we get, but we make a life by what we give.” Most people forget about giving when they see an increase in their income. According to Dave Ramsey, giving “softens the heart of the giver and frees their soul from dependence on money. You’ll never walk away from giving feeling bad!” 

Deposit into Savings
Will you “pay yourself first” and save the estimated extra $38 per paycheck you didn’t have before the tax reform bill? Check with your HR Department about direct depositing your increase into a savings account so that you won’t have to remember to manually save it each month. If you weren’t expecting the additional money each paycheck, automatically depositing into a savings account makes perfect sense. You know the old saying, “out of sight, out of mind” can really help you grow your emergency “Rainy Day” Fund to nearly $1,000 by year end if you started saving from each paycheck in early 2018.

Put Towards Retirement
Will you start contributing to retirement – something you’ve always wanted to do? Or will you boost your current retirement contribution? According to Crown Financial Ministries’ “Monthly Deposit Savings Calculator,” demonstrates that investing into your retirement account at $75 per month for 5 years at a conservative 4.0% average rate of return would yield $5,069! Imagine saving that same $75 per month for 35 years where you would contribute $31,500 and then watch it grow to almost $69,000! This is some real money!

Get Out of Debt
Will you pay more on your bills to get out of debt quicker and become debt free? By simply taking the extra amount in your paycheck beginning in 2018, and utilizing the Debt Snowball or Debt Avalanche methods, you can save hundreds of dollars in interest expense! Honestly, who doesn’t want that???

Put Towards Education
Will you put the extra money toward your child’s college education? You have always dreamed of having the money to invest for the future education needs of your child. With the extra money in your paycheck each month, why not invest now in a 529 college savings fund or Coverdell Education Savings Account for your child? Depending on when you start saving and the age of your child, according to the monthly deposit savings calculator mentioned above, you could accumulate $11,237 for a current 8 year old going to college at age 18! That is investing $75 per paycheck for 10 years at a conservative 4.0% annual rate of return. 

So, what are you waiting for? If you aren’t intentional with this increase in income, it will slip right through your fingers and you will never get it back. Do something positive with your money. Your "future self" will be most grateful that you put your extra income to work!

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