How to Keep More of the Money You Earn

This is a short article that will give you three actionable tips on how to keep a greater percentage of the wages you work so hard to earn, from the office of noted Philadelphia bankruptcy lawyer David Offen.

Tip #1: Use Your Credit Cards, Don’t Let Them Use You!

Everyone knows that credit cards charge an exorbitant rate of interest and that revolving balances can quickly get out of control if not paid down quickly. The key to using credit cards wisely and not letting the credit card lenders use you to make money in interest charges is to pay off your credit cards each month.

Why? Using your credit cards responsibly month after month shows the three credit agencies, Equifax, TransUnion, and Experian, that you are a good risk as a borrower. Paying off your credit cards each month keeps your debt-to-income ratio low, which also improves your credit score. If you have a high credit score, you can get a car loan or a mortgage at a lower rate of interest.

How does one use a credit card responsibly? You use it for things that you would otherwise just pay cash for or use your debit card for, such as groceries, dry cleaning, or fuel for your car. Then pay the card off each month with the cash you would have spent otherwise.

You have probably gotten advice to have a credit card “for emergencies.” While as a last resort one should have available credit for an unexpected financial emergency, expecting to fund emergencies with credit can cause financial problems for you in the short term and create poor financial management habits in the long term.

Here’s how: Let’s say you have a sudden death in the family and must fly across the country to attend the funeral. The airfare, hotel, and other expenses come to $2,700. You use a credit card to fund this trip.

You are fortunate and have a credit card with interest at 16%. Interest on credit cards can range anywhere from 9% to 29%!

Your minimum payment on this card is $70. If you pay only the minimum each month, it will take 54 months – that’s right, 4-½ years! – to pay it off, and you will pay $1,055 in interest.

Shocking, isn’t it? Credit card lenders purposefully set the minimum payment low to make money. Knowing this, let’s say you bite the bullet and resolve to pay three times the minimum to pay the debt off sooner, which is $210. It will take fifteen months to pay off this debt and you will have paid $241 in interest.

Much better, but what if another financial emergency arises in those fifteen months? If you charge it, then your balance increases, and so on and so on. You will be riding the revolving debt rollercoaster with no way out. And what if your card’s interest rate is higher? You see the problem.

Tip #2: Maintain an Emergency Fund

This is the alternative to using credit cards to fund financial emergencies. If you can use your own money to pay for emergencies, you avoid paying any interest at all.

If you had been depositing that $210 each month in a savings account, in only a year you would have saved $2732.36 at .2% interest. Sure, the interest gained is not much, but you are prepared for that $2700 expenditure, don’t need to charge it, and are not forced to pay interest and make profit for the credit card lender’s shareholders.

Once you spend that money, you have $32.36 remaining and you simply continue to deposit your $210 every month to rebuild your fund.

Tip #3: Contribute to Your Employers IRA

If your employer offers a 401(k) or 403(b), it is a no-brainer to contribute to it, for three reasons.

1. You contribute with pre-tax wages, so your taxable income is less and you are in a lower tax bracket. This means you pay less income tax on what you earn.
2. An IRA typically has better returns than regular savings, and over the life of your IRA you can adjust the risk level of your investments so that you take more risk early on and less risk as you near retirement.
3. You are taxed on IRA funds as you withdraw them when you are retired and presumably in a lower tax bracket. This means you pay even less income tax on what you’ve earned.

Last, if your employer offers matching contributions to your retirement fund, contribute at least that amount, otherwise, you are leaving free money on the table!

Use these tips to keep more of the money you earn. Good luck!

About the Author

Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy bankruptcy and foreclosure lawyer in Philadelphia