‘Painless’ Deductions Hurt When Added Up

At the risk of spoiling a good day, spend a few minutes thinking about withholding taxes, mutual fund fees and check printing charges.

These expenses share an important characteristic: They don’t have to be paid out of pocket, but are “painlessly” collected by deduction.

Withholding taxes - for federal or state income taxes, Social Security, or state unemployment and disability insurance - routinely appear only as entries on your paycheck stubs. The money is long gone before you get your money.

Then, once a year, you fill out a tax return for Uncle Sam to determine whether you owe him any more or he owes you some back.

Mutual fund fees can be even further out of sight. Since charges for management and operating expenses are collected directly from the fund’s pooled assets, you never get a bill or have to write a check to pay your share.

Unless you take the trouble to read the fund’s literature carefully and do some work on your own with a calculator, chances are you never get even a rough idea of how much you pay to own a fund investment.

Then there’s the every-so-often routine of ordering new boxes of checks. Lots of financial institutions make this easy by handling your order without even asking for payment, and then debiting your checking account for a fee of, oh, $25 or so.

You notice this expenditure only when you balance your checkbook against your monthly statement. If you aren’t a diligent checking account balancer, maybe you never notice it at all.

The problem with these oh-so-convenient arrangements isn’t hard to spot. They give other people easy access to your money.

What can you do to fight back against this legitimatized pocket-picking (to exaggerate the problem only slightly)?

Well, if you’re on anybody’s payroll, you’re not going to get out of income tax withholding. But you can make sure at filing time that you pay only what’s required, nothing more.

As for checks, consider those independent check printing services that give you the chance to shop by price and charge maybe half of what you are paying now.

If you have any investments in mutual funds, either directly or through an employer-sponsored retirement savings plan, consider this suggestion from John Rekenthaler, publisher of the Morningstar Mutual Funds research service:

“Write down the name of each mutual fund you own, followed by the dollar amount invested in that fund and the fund’s annual expense ratio. Multiply the second item by the third to get the actual dollars spent on that fund over the past year.

You’ll be surprised.