Stimulate your economy: Spend that payroll tax holiday

money to burn

If you're going to spend your payroll tax holiday, and you will, make sure you do it up right. Image: CC Dan 4th/Flickr

The payroll tax holiday is giving everyone with a paycheck a 2 percent raise for the next two years. Personal finance advisers suggest using that extra money to pay down debt, but the government hopes you will spend it to stimulate the economy. If you’re like most people, you will spend it, so spend it wisely.

Get real about your payroll tax holiday

Most people don’t have the personal finance discipline to do what personal finance experts suggest with the payroll tax holiday. That fast cash will be spent as quickly as it comes in, and the economy will get a $120 billion shot in the arm. That should be good for everyone. So instead of letting your payroll tax holiday blend into your routine spending unnoticed, figure out how much extra money you’re making. Then buy something you’ve always wanted or something you really need. The Obama administration will thank you.

How much is your payroll tax holiday?

The 2 percent raise made possible by the payroll tax holiday is actually a reduction to 4.2 percent from 6.2 percent of the amount taken out of your paycheck for Social Security. If you make $40,000 a year, that adds up to an extra $800, or $66 a month. Personal finance experts will tell you to divert 2 percent of your paycheck to an additional savings account or increase the minimum monthly payment on your credit card with the highest interest rate. But the economy you depend on lies in the balance. In the spirit of national unity, why not buy yourself an $800 present?

Money to burn

Invest your payroll tax holiday in your health. A gym membership and a new pair of running shoes goes a long way toward your physical and mental well-being. Speaking of mental well-being, take your significant other out to dinner and a movie more often, or take the vacation you’ve been putting off while you’ve been waiting for the economy to turn around. Get an iPad, buy a professionally tailored suit for the first time in your life, take a cooking class, or learn how to speak Chinese. The payroll tax holiday is one of those rare moments when you have money to burn. Be sure to enjoy it.


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