On Episode 19 of the Your Financial Pharmacist Podcast, we feature a listener question on an Ask Tim & Tim segment of the show. Keith from Ohio asks a question about the utility of a Health Savings Account (HSA) as a long-term investment strategy.
Submit Your Question
Do you have a financial question that we can feature on an upcoming Ask Tim & Tim segment of the show? Head on over to www.yourfinancialpharmacist.com or e-mail us at [email protected] to submit your question today!
With most people now receiving their paychecks via direct deposit, many often ignore their paystubs. I admit I used to be guilty of this until I started getting serious about budgeting and my finances in general.
Earlier this year I decided to take a detailed look and found out that I was paying for something that I didn’t need. Not only that I had been paying it for over 3 years!
Although it’s easy to focus on your gross and net pay and ignore all the other “stuff” on your paystub, it’s important to make sure that you have your deductions optimized and that you aren’t paying for anything that’s unnecessary.
If you’re working hard to get out of debt, you want to be sure you are bringing home as much money as possible to accelerate your progress.
Here are some easy changes to your paycheck you can make that could potentially increase your take home pay:
Set Your Federal Withholdings to Break Even
Federal income tax is taken out of your check according to your your filing status (single, married, head of household) and the number of withholdings. When you first started your job you would have designated this on your W-4 form. This will stay the same unless you make a change.
This is really important because it determines whether you will owe money on your tax return, receive a refund, or break even. I’m a strong believer in breaking even so I don’t give the government an interest free loan aka a refund.
Although you may like getting a refund every year, keep in mind this is money that you could have in your pocket every month. Also, some people actually treat the money from a refund differently than they would if it was in their paycheck every month. Instead of using the money to pay down debt, you may see it as a Las Vegas vacation or a shopping opportunity.
Therefore, setting your withholdings so you don’t owe or receive money can really help maximize your monthly take home pay to reach your financial goals. To see if you are on track, you can check out the IRS withholding calculator. If your taxes are complicated or need a second look, check with an accountant.
Eliminate Unnecessary Deductions
Besides federal income tax you may also have state and local income tax. In addition, if you are a W-2 employee, your employer will be required to take out FICA taxes (Medicare and Social Security aka OASDI). While you can’t get rid of these deductions, there are some you can.
You likely have some benefits through your employer such as health, vision, and dental. You may also have life, disability, or other insurance. Many of these benefits are automatically initiated when you start working and therefore you have to opt out if you don’t want them.
This is exactly what happened to me. I was paying for life insurance through work even though I had adequate coverage privately. I was automatically enrolled in this and for awhile didn’t know what it was. It was listed as the abbreviation FEGLI (which I later realized stood for Federal Employees Group Life Insurance) and for years never questioned it.
Make sure you know what every deduction is, whether or not it’s required, and whether it’s something you need.
If you are married and your spouse works, check to see if you have any duplicate or unnecessary healthcare deductions. Also, if you have private life and disability insurance, make sure you are not paying for any extra coverage through work.
Reduce Retirement Contribution…Temporarily
Ok this one was tough to write as it pains me to even suggest anyone cut down their retirement contributions. As you probably know, Americans don’t do very well in this area. In fact only ⅓ of people are actually contributing to an employer sponsored plan. So if you are contributing something toward retirement then congratulations!
However, if you have still have credit card debt and students loans, it’s possible that you could be contributing too much to your retirement. When you’re saving for retirement in this situation, you’re basically saying that you can get a better return in the stock, bond, or other market than the interest rate on your debt. While that’s possible, there is certainly some risk and the return is not guaranteed.
Like insurance or other deduction, you may be automatically enrolled in a retirement plan at a default percentage. If you’re getting an employer match then consider contributing up to that point so you can take advantage of the “free money.” However, if you still have non-mortgage debt and are contributing beyond the match, then you may want to scale back temporarily so you can increase your take home pay. Remember, the faster you get rid of your debt, the faster you can maximize all retirement accounts.
What change can you make on your paycheck to increase your net pay?
On Episode 18 of the Your Financial Pharmacist Podcast, we welcome back to the show YFP team member and co-author of Seven Figure Pharmacist, Tim Church, PharmD, BCACP, CDE. On this episode, we talk about qualifying criteria, pros/cons and how to maximize benefits associated with the Public Service Loan Forgiveness (PSLF) Program.
Episode 018 Special Giveaway
Along with this episode, we are providing a PSLF Checklist to ensure you are ready to go in determining eligibility criteria, where to submit required forms, and how to maximize forgiveness. Specifically, you will learn:
Information about PSLF eligible loans and how to confirm employer eligibility to meet the PSLF requirements.
Details about where and when to submit the employment certification form.
Ideas to reduce your adjusted gross income (AGI) to maximize forgiveness.
On Episode 017 of the Your Financial Pharmacist Podcast, we wrap up our 3-part series about the financial planning industry and what to look for when hiring a planner. We’ll talk more about how they get paid and what specifically to ask to make sure you are hiring a planner that has your best interest in mind.
Episode 017 Special Giveaway
Along with this three-part series, the team at YFP has prepared an awesome giveaway that will give you the “Nuts & Bolts to Hiring a Financial Planner”. Head on over to www.yourfinancialpharmacist.com/nutsandbolts to get your copy today! In this giveaway, we cover:
the benefits of hiring a financial planner;
the different types of financial planners;
how financial planners get paid;
questions to ask when hiring a financial planner;
how to find a trustworthy financial planner
Featured on the Show
Episode 15 of the Your Financial Pharmacist Podcast – “West Point to CFP: Tim Baker’s Journey to Becoming a Fee-Only Financial Planner for Pharmacists”
Episode 16 of the Your Financial Pharmacist Podcast – “3 Reasons Why Pharmacists Should Consider Hiring a Financial Planner”
John Oliver YouTube Video (Retirement Plans: Last Week Tonight with John Oliver (HBO))
On Episode 016 of the Your Financial Pharmacist Podcast, we continue our 3-part series about finding a financial planner that you has your best interest in mind. Specifically, we talk about the benefits a of hiring a financial planner; some obvious, others not so much.
Episode 016 Special Giveaway
Along with this three-part series, the team at YFP has prepared an awesome giveaway that will give you the “Nuts & Bolts to Hiring a Financial Planner”. Head on over to www.yourfinancialpharmacist.com/nutsandbolts to get your copy today! In this giveaway, we cover:
the benefits of hiring a financial planner;
the different types of financial planners;
how financial planners get paid;
questions to ask when hiring a financial planner;
how to find a trustworthy financial planner
Featured on the Show
The Laws of Wealth: Psychology and the secret to investing Success by Dr. Daniel Crosby
On Episode 015 of the Your Financial Pharmacist Podcast, we kick off a 3-part series exploring the good, bad and ugly of the financial planning industry by interviewing the owner of Script Financial and YFP team member, Tim Baker, CERTIFIED FINANCIAL PLANNER.
Episode 015 Special Giveaway
Along with this three-part series, the team at YFP has prepared an awesome giveaway that will give you the “Nuts & Bolts to Hiring a Financial Planner”. Head on over to www.yourfinancialpharmacist.com/nutsandbolts to get your copy today! In this giveaway, we cover:
Derek Schwartz, PharmD, RPh is a 2014 graduate of Ohio Northern University Raabe College of Pharmacy who currently works with the Kroger Company in the Cincinnati, OH area. After graduating in 2014 with over $180,000 in debt, Derek is on pace to being debt free in January 2018.
On Episode 013 of the Your Financial Pharmacist Podcast, we finish off our 2-part discussion of getting organized with your student loans as Tim Church rejoins Tim Baker as co-host. Tim and Tim dive deeper into the 4 strategies to pay off your student loans and discuss the associated repayment plans to consider. Tim and Tim also discuss refinancing and consolidation options and tackle the question of investing versus paying down debt.
What You’ll Learn From This Episode
The 4 strategies to take to pay off student loans
The difference between refinancing and consolidation
I was reminiscing back to the time period between 2012-2015 where Jess and I were throwing almost 40% of our take-home pay towards student loans.
I distinctly remember the feeling of living paycheck to paycheck despite making more than $100,000 per year. I also remember the sense of frustration that this was not what I had thought I signed up for when starting pharmacy school.
It goes without saying that for many new graduates, student loan payments can make a paycheck evaporate in no time unless you are on an income-driven repayment plan with low monthly payments, are seeking loan forgiveness, or decide to take out your loan payments for 20+ years.
I’ve talked with hundreds of pharmacists that describe the frustration of feeling like they are making little to no progress on paying off their loans despite making massive monthly payments.
Why is that the case? Simply put, a big debt load with interest getting in the way.
Making a Second (Big) Mortgage Payment
The average indebtedness for a Class of 2017 graduate was $163,494 (Ref: AACP Graduating Student Survey, 2017). Assuming a 6% interest rate and 10 year pay back period, that would equate to a monthly payment of $1,815.12.
The interest portion alone due on the very first month’s payment of this debt load is $817. Therefore, if you were to send in a first month’s payment of $818, only $1 of that would go towards the original balance of $163k. Ouch.
Even if you were able to throw $1000 per month at this loan, you can see that in the early months, your balance would decrease by less than $200 per month.
Thankfully as the principal is paid down, the interest gets lower and lower but in the first few years, it can feel like you are throwing a mortgage payment (or two) but not seeing the balance go down as much as you would like.
Speaking of mortgage payments, check this out.
Assuming a 6% interest rate and a 10-year payback period, the monthly payment associated with the average student loan debt ($163,494) is equivalent to buying a $380,200 home (assuming 4% interest and 30-year mortgage).
Ever wonder why pharmacists often say they feel like they are making two mortgage payments? This is why.
On Episode 012 of the Your Financial Pharmacist Podcast, we change things up a bit as Tim Church joins Tim Baker in the co-host chair. On this 2-part episode we dive a little deeper into how student loans affect pharmacists, we discuss how to properly inventory your student loans, why finding your why is so important and 4 strategies to pay off your loans.
What You’ll Learn From This Episode
YFP team’s approach to student loans
How to take a proper inventory of your loans
Why your Why is so important
Overview of the 4 strategies of paying off your loans
