Congress passed a cut on the Social Security tax in 2010, effective January 1st of 2011. Most people didn't even recognize the increase in their take-home pay. Of the 7.65% of wages that were paid as FICA, 6.2% went for Social Security; in 2011 that was lowered to 4.2% and President Obama is thinking of having it lowered to 3.1% in 2012.
So...if your gross wages are $50,000 a year, that would mean $550 more a year in your pocket, or over $10 more each week in your pocket. I know it doesn't sound like a whole lot, but this is $10.57 a week you wouldn't have had otherwise. As mentioned, most people didn't recognize the increase in disposable income (that which is left after taxes), and therefore, probably didn't even save half of it.
Well, here's your second chance, and some opportuniites to put this 1.1% increase in take-home pay to good use:
Pay Off Debt
This is truly where you need to start. Let's say you have $9,000 in debt between three credit cards and you save the 10.57 per week, rounded up to $50 a month. You're currently paying $50, $100, and $100 a month on credit cards #1, 2 and 3, respectively. Throwing that $50 towards your debt will work like this:
Credit card #1 has a $1,000 balance and you're currently paying $50 a month; by increasing that to $100 a month, you'll pay it down in less than a year (11 months.)
Then, take that $100 from credit card #1 and apply it to credit card #2 with a $3,000 balance. You're currently paying $100 a month on it, so now that goes to $200 a month. This will then be paid off in 13 months. You are now 24 months from your starting point.
Now, you take that $200 a month from credit card #2 and apply it to the $5,000 balance on credit card #3, on which you've been paying $100 a month, and up your payments to $300 a month, and you'll have that paid off in 17 monhts.
You've just paid off $9,000 in debt in 3 1/2 years! Good job.
Put The Money Directly In Your 401(k)
This is especially lucrative if you receive a match from the boss. If your boss matches 50% of your contribution, an extra $50 a month is $75 a month in your account, for a total of $900 more annually in your account. This adds up after several years.
Open A 529 College Plan
Yeah, eventually, hopefully, your 3-year-old will go to college, and $550 a year, earning a nice amount of interest will help defray the cost of an education. Earnings on 529 plans are federal and state-tax free.
Are you currently saving the 2% break you were given at the beginning of the year?