by Broderick Perkins
(2/3/2012) Erate Exclusive - A hallmark of personal financial planning is a trusty budget used to track your money coming and going.
If you don't have a budget, you don't have a clear picture of where your money goes. If you don't know where your money goes, you can't know where you can cut back and save money for your financial goals including sending the kids to college, starting a business, home improvements or other capital investments that can give you a good return on your money.
Likewise, if you aren't aware of additional income, you are likely to squander the extra cash on still more untracked spending.
That's what happened to millions of American's in the past year when a payroll tax cut boosted their income by hundreds, even thousands of dollars.
The National Foundation for Credit Counseling (NFCC) said 66 percent of consumers didn't have a clue their paychecks were larger last year, thanks to a federal payroll tax cut.
The cuts, in effect throughout 2011, allowed workers to pay 4.2 percent into Social Security instead of the normal 6.2 percent. Congress extended them through the end of February this year, and now a select committee is negotiating if and how to continue them for the whole year.
Maybe the government needs the money more than consumers.
The NFCC said the two percent Social Security payroll tax cut put $1,000 back into the pockets of a family earning $50,000 annually, "a significant amount of money that could mean the difference between financial stability and financial distress each month."
For many $1,000 is a mortgage payment, a few months or more marketing expenses for a small business, a month's rent for college housing, a minor home improvement, such as a room's paint job or a fat debt reduction -- if it wasn't wasted on a few more dinners or nights out on the town, a big-screen TV for the Superbowl, or a fancy makeover at the boutique.
"Even if the dollar increase is small, consumers should be aware of it," said Gail Cunningham, spokesperson for the NFCC.
"Not recognizing that the paycheck was larger begs the question of how the additional money was spent. Knowing how much you make and consciously determining how to spend it are basic building blocks of financial stability. This poll provides another example of the need for increased financial education," she added.
At least those who were aware of the increased income appeared to have allocated the money responsibly. The largest number of consumers aware they had extra cash last year used it to pay off debt (18 percent). Another 8 percent used the money to catch up on past-due bills.
Others aware of the small windfall used the money to increase their retirement contribution (4 percent) or they saved the money (3 percent). Only one percent of those aware their paycheck was padded said they frivolously spent the money on something for themselves.
"Consumers should become familiar with the format of their paychecks, and upon receipt promptly confirm that all entries are correct, taking any questions to their payroll supervisor," Cunningham advised.
"This way, whether it's a raise, bonus or payroll tax cut, they will be able to make conscious decisions regarding how the increase should be spent to best benefit their financial situation," she added.
After consumers were asked what they did with the 2011, 2 percentage point payroll tax cut last year, here's how they responded.
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