Budgeting, Part 1: Increasing Your Take Home Pay

Budgeting, Part 1: Increasing Your Take Home Pay
Eileen St. Pierre, The Everyday Financial Planner

It can be hard to save money for a rainy day. There never seems to be much money left at the end of the month. We all could use a little help improving our cash flow. This column is the first in a 3-part series on providing that help. I can’t give you a raise, but I can let you in on a financial counselor’s secret for increasing your take-home pay: the W-4 form.

Check your W-4 withholdings: You may be giving the government an interest free loan.

I’m going to be frank here. Many people will under-report their withholdings in order to get a large income tax refund. But if you have to borrow money to meet your day-to-day expenses because too much income tax is taken out of your paycheck, that’s just stupid.

stickfamilyoffourI’ll prove my point with a real-world example. A former client of mine, a single woman, suddenly found herself married with two stepchildren. She had listed herself as single on her W-4 with 0 withholdings (so the maximum amount of tax was taken out of her paycheck). I advised her to change her status to Married and claim at least 4 withholding exemptions.


I used the withholding calculator at Your Money Page, and assumed the following inputs:

  • $1500 gross pay every two weeks
  • 25 paychecks a year
  • Oklahoma state resident

By changing her status to Married with 4 withholdings,

  • Her take-home pay rose by $168.95 a paycheck – that’s $337.90 a month and $4,054.80 a year!
  • Her take-home pay went from 75.82% to 87.98% of her gross pay.
  • Her federal income tax dropped by $141.95 a paycheck. Her state income tax dropped by $27.00 a paycheck.

The Compromise

My client was hesitant to make such a drastic change. She was afraid of losing too much of her tax refund. So we met in the middle. She changed her status to Married, but kept her withholdings at 0. It was a good start.

Stay tuned for next week’s column Budgeting, Part 2: Reducing Expenses. Visit my Basic Financial Management page for more information.