Last week, a coworker was checking her bank statement and discovered that her most recent paycheck was short. Significantly short. As she had worked the full pay period and hadn’t made any changes to her withholdings, this didn’t make sense. So she immediately pulled up her paystub (ours are all available online).
Somehow, her exemptions (both state and federal) had been reduced to zero.
Obviously, it was none of my business, so I didn’t ask how many allowances she normally claimed, but this change was enough to put a huge dent in her paycheck.
No one can explain to her why this change was made. She had just filed her taxes, but got a refund, so there was no reason that her exemptions would need to be changed, at least from the government’s point of view. She hadn’t gone into the system to make any changes. It sounds like it may have just been a glitch somewhere. On the positive side, she will get this money back. On the negative side, she won’t get it back until she files her 2014 taxes next year.
Of course, she has the option to make a change in her withholdings again so that her next paycheck is high, then change the withholdings back to her normal level. And if she were in dire straits, I’m sure that’s exactly what she would do. But that requires more than a little bit of work. So it sounds like she’s just going to deal with it.
Thankfully, her financial situation is such that this isn’t going to mean she won’t be able to pay her bills. Ultimately, it means that for this pay period, instead of putting her standard amount into her savings account, she will be pulling a bit of money out of her savings to cover the loss. But she’s lucky that she has that ability.
I take two lessons from this experience.
Number one, always check your paycheck. Is it high or low? Look into that. Find out why. I think that we all would immediately do some investigating if our paychecks came back low, but would we research if they came back high? I know I would, but I think a lot of people would just consider it some sort of windfall and leave it at that. But what if that windfall is actually because your withholdings got messed up and while you get the money now, you’re going to have to pay it back to the government come tax time? Probably something you should know now before you go spending all of your money on plane tickets and fireworks.
And of course, the second is to make sure that you have an emergency fund or some sort of savings to cover you if something like this happens. This isn’t the normal sort of emergency you would think about when considering uses for your emergency fund. No one got sick or lost their job or had their house fall down around them. No, there was just a simple computer glitch that meant the government kept more of her paycheck than anticipated. If she lived paycheck to paycheck, this could cause some huge problems.
Remember, of course, that your emergency fund doesn’t have to be huge. Of course, the goal is to get enough money to have a number of months of expenses set aside (a quick survey of the internet says this should be anywhere from 3 months to one year’s worth of expenses). But that’s a lot of money. I don’t even want to think about what one year’s worth of expenses actually calculates out to be for me. But we can all try to set a little bit aside every paycheck. Even if it’s only a few dollars. It’s better than nothing. Try to get to one month’s worth of expenses. Or try to get to $1000. And then go from there. Save yourself from an emergency caused by a computer glitch.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.