Kyle and I have been so busy with work in the past few months that we have really left our money management on autopilot. I haven’t even played with spending scenarios recently, as I love to do! But even without me looking for issues to tweak, three areas of our budget have popped up with some needed updates.
Take-Home Pay Increase
We noticed that the take-home pay we received at the end of in January was slightly higher than what it was in December – our state withholdings were reduced by $25 for each of us. For months we’ve been receiving emails about North Carolina’s tax system overhaul, but we weren’t sure how exactly it would affect us. North Carolina moved from having a tiered income tax system starting at 6% to a flax income tax rate of 5.8% – but they also monkeyed with the personal exemption and standard deduction amounts.
We weren’t sure if we could trust the automatic withholdings calculators, but after reading about the tax changes a bit we decided that they are probably in the ballpark. We have received a refund from our state taxes in each of the last several years, so we have some wiggle room there, probably. I found an estimate that a married couple making close to our income will pay $1,200 less in state income tax this year in comparison with last year. Since that would be a downward adjustment of $100/month instead of our $50/month, we’re probably being conservative and having more withheld than necessary. We’re likely okay to adjust our budget for the $50/month that was freed up without having to put it into our Tax savings account as we did when my withholdings went down when I switched payroll systems.
With approximately $50 extra per month to play with from the lower state income tax, we are allocating it to three budget line items.
1) We’ll increase our Roth IRA contributions by $20 per month ($5 more per contribution).
2) We’ll increase our grocery budget by $20/month, since we exceed our $400/month grocery budget almost every month.
3) We’ll increase our charitable giving savings rate by $10/month (to $50/month).
Roth IRA Contributions
We dedicated a few months of Roth IRA contributions in 2013 to maxing out our 2012 Roth IRAs, hoping that we could roll the contribution room forward to subsequent years until we could finally use up all of our contribution room each year. Well, we weren’t able to finish maxing 2013 out in 2013 so we’re going to do it before April 15 of this year. We have $1,931.38 in contribution room left in 2013 ($1,431.30 in my IRA and $500.08 in Kyle’s) as of February 13, 2014.
We should have planned for this starting at the beginning of January, but as I said we have been kind of preoccupied and it wasn’t until the snow days last week that I took the time to consider what to do with the Roth IRAs. We decided to switch the next couple months of our normal contributions to apply to 2013 (they have been applying to 2014) and top up the extra $218.04 from extra paychecks or savings (we have too much cash lying around, anyway!), going in evenly with the 8 scheduled payments. We’ll use savings from our general savings account/nest egg.
Here is a table of our old savings rate (until January 2014), our new savings rate (as of February 2014), and the rate at which we’re maxing out each of our Roth IRAs. The difference between the total top-up savings rate and our desired savings rate is $109.02 per month. If we don’t have enough of Kyle’s side hustle income coming in to cover the difference, we’ll pull the rest from savings. (Example: We have $54.51 in top-up contributions in February, but from Kyle’s paycheck we’ll contribute $30.63, so we only have to pull $23.88 from savings that month.)
Once we’re done with 2013 contribution we’ll switch back to 2014 at our “new” savings rate until we go through our job transitions – and we hope this is the year we can max out within the calendar year!
What budget adjustments have you made recently? Did you or will you max out your 2013 IRA contributions? Do you trust automatic withholdings calculators?