How do you adjust your withholdings? You adjust your withholding by submitting a W-4 to your company’s HR or payroll department with an updated number of exemptions. To determine how many exemptions you should put down, I would use the IRS Withholding Calculator because recent laws have made numerous “rules of thumb” obsolete.

Now that you know how, let’s talk about why!

Pay Off Debt

The immediate benefit of adjusting your withholding is that you’ll have more money in your paycheck. If you’re in debt, this new found money can give you a much needed boost in catching up and paying off that debt faster than you planned.

For example, if you have $10,000 in credit card debt at 17.50% APR, it would take you 5 years if you paid $302 a month towards the debt (with no other spending). If you were to increase that monthly payment by $40, you would be done in 4 years. If you were to increase it by $108, you cut it down to 3 years. Not only that, but by increasing your payment, you pay less overall interest over the life of the debt. So $40 a month doesn’t seem like a lot but if you put it towards your debts, it can have a fantastic effect.

Save the Difference

If you don’t have debt, treat the added cash as a bonus each month. You can take that cash and invest or save it. If you have savings goals you hope to accomplish, such as saving towards 529 plans or an emergency fund, then this extra cash can get you there faster than you expect. You can lock in some of the best CD rates with investments as small as $1 nowadays, which is a great way to earn a slightly better interest rate with zero capital risk. It might not seem like a lot but every little bit counts, especially nowadays.

Taxes Are Enough!

Finally, this is a philosophical reason but paying taxes is enough. I’m all for paying my way and fulfilling my obligations, I recognizes taxes are a necessary evil and that they help pay for the freedoms and liberties I enjoy, but I don’t really want to give the government an interest free loan too!

Do you adjust your withholdings? If so, why?

Adjust Your W-4 Withholdings from personal finance blog Bargaineering.com.

This is part two of a two part Devil’s Advocate, Angel’s Advocate article in which I argue both sides of an issue. This is the Angel’s Advocate post, here is the Devil’s Advocate post where I argue you should be monitoring your credit score all the time!

Focus On The Report, Not Score

You should be requesting a free copy of your credit reports using AnnualCreditReport.com and spending your time reviewing those for errors, not focusing on your credit score. While your credit score is important, it’s calculated based on your report so that’s where you should spend the bulk of your time.

I know you don’t have a ton of time to devote to your credit report and score, so spend it on the more important of the two.

Credit Score Tiers

In trying to find out what is a good credit score, I discovered that the interest rates on mortgages and car loans fell into discrete tiers. On a mortgage, if you had a score between 760 and 850, you could expect a mortgage interest rate of around 4.46% APY. That means that a 761 paid the same thing as a perfect 850. The next tier was 700 – 759, so someone with a 701 paid the same as someone with a 750.

Once you find out which tier you’re in and how far away you are from the next tier, you don’t really need to monitor as closely. This is doubly true if you don’t plan on getting a loan in the near future!

Spend That Time Elsewhere

This morning, I said overchecking your score beats underchecking your score, which is an argument I still stand by. However, it ignores the fact that checking still takes time and it’s time you could devote to other things in your life. Financial fitness is important, of course, but it’s more important to focus on the factors involved in your score, instead of the score itself. Take a few minutes to setup paperless statements and email reminders so you don’t miss payments. Set up debit arrangements do you don’t have to mail a personal check each month. Or, go take a walk around the block and enjoy the outdoors and do absolutely nothing financially related.

I don’t mean to disparage the people who check their score every day but I think it’s unnecessary. I recognize with services like Credit Karma and MyFICO, it takes only a few minutes, so some of my reasons may not apply to you, but sometimes it’s better to spend those minutes with family and friends, instead of your computer and your credit score.

Don’t Check Your Score Every Day from personal finance blog Bargaineering.com.