Be yourself; Everyone else is already taken.
— Oscar Wilde.
This is the first post on my new blog. I’m just getting this new blog going, so stay tuned for more. Subscribe below to get notified when I post new updates.
How Much Should I Contribute to My 401(k)?
How To Read Your Pay Stub
Just A Quick Question….
Hello! Almost every day I have a client email me wondering about their finances, their job, or their future. They always start with: “I have a quick question…”. Of course, the question may be quick, but the answer rarely is! I would like to share with you my answers to these seemingly simple topics.
Today’s topic is How to Read Your Paystub. I’ll let you in on a little secret: practically no one understands their paystub or really knows how much they are paying for various taxes and benefits. No need to feel bad about this! Read on and you will finally know.
Income
First of all, you are paid either hourly or on yearly salary that is pro-rated by the number of paychecks per year. If you are paid hourly, that’s easy: You multiply the number of hours worked in the pay period by your pay rate. Multiply your hourly rate by the 2080 work hours there are in a year to see how much you earn on a yearly basis. For a salaried employee the total amount you are paid for the year is divided by the number of paychecks to come up with your paycheck.
The majority of employers pay either bi-weekly or semi-monthly but you may be paid on a different timetable:
- Weekly (52 paychecks per year)
- Bi-Weekly, or every other week (26 paychecks per year)
- Semi-Monthly, or 2 times per month (24 paychecks per year)
- Monthly (12 paychecks per year)
- Quarterly (4 paychecks per year)
- Annually ( 1 paycheck per year)
Great! You have income. How come what ends up in your bank account is far less than what you thought you earned?
Deductions
Taxes take quite a bit out of your earnings. Just about everyone has social security (or FICA) and Medicare taxes taken from their pay. You pay 6.2% of your earnings into the social security system up to your first $132,900 of income in 2019. The upper limit on how much gets taxed changes each year to keep up with inflation. You also pay 1.45% of your earnings into the Medicare system. And, your employer has to match these funds, so they pay 6.2% of your earnings into social security and 1.45% into Medicare on your behalf in addition to the funds they take from your paycheck!
You probably have federal and state taxes withheld as well. You are required to have federal taxes withheld unless you can verify that you will not owe any taxes when you file your income tax return. This could be the case for a student working just for the summer and not earning more than about $10,000. When you started your job, you were required to fill out a W-4 (IRS W-4)to authorize your employer to withhold the amount that you thought that you would owe each year. If you are getting a large refund when you file your income taxes or owing when you file your income taxes, you should fill out a new W-4 changing the exemptions so that the proper amount will be withheld.
You likely have deductions from your earnings for company benefits that you signed up for. The cost of these benefits may be split between you and your employer or you may have to pay for the entire cost. The amount that you owe for the year is divided by the number of paychecks per year and taken from your earnings. The most common deductions for company benefits are for medical, dental and vision insurance, retirement plans, life insurance, dependent care accounts and flexible spending accounts.
Lastly, some of your company benefits will reduce your taxable income and others don’t. What can reduce your taxable income?
- Retirement plans (401(k)’s, 403(b)’s, SEP, SIMPLE, 457)
- Medical, dental and vision insurance
- Flexible spending accounts
- Health Savings Accounts
- Dependent Care Accounts
These items won’t reduce your taxable income but will reduce your paycheck as they are deducted from your pay:
- Life insurance premiums
- Disability insurance premiums
- Long term care insurance premiums
- College Savings Plan contributions
There you have it! In future articles, we will go over the difference between HSA’s and FSA’s, how much to contribute to your retirement plan and how to read your W-2 among other topics.
What’s your Quick Question?
Introduce Yourself (Example Post)
This is an example post, originally published as part of Blogging University. Enroll in one of our ten programs, and start your blog right.
You’re going to publish a post today. Don’t worry about how your blog looks. Don’t worry if you haven’t given it a name yet, or you’re feeling overwhelmed. Just click the “New Post” button, and tell us why you’re here.
Why do this?
- Because it gives new readers context. What are you about? Why should they read your blog?
- Because it will help you focus you own ideas about your blog and what you’d like to do with it.
The post can be short or long, a personal intro to your life or a bloggy mission statement, a manifesto for the future or a simple outline of your the types of things you hope to publish.
To help you get started, here are a few questions:
- Why are you blogging publicly, rather than keeping a personal journal?
- What topics do you think you’ll write about?
- Who would you love to connect with via your blog?
- If you blog successfully throughout the next year, what would you hope to have accomplished?
You’re not locked into any of this; one of the wonderful things about blogs is how they constantly evolve as we learn, grow, and interact with one another — but it’s good to know where and why you started, and articulating your goals may just give you a few other post ideas.
Can’t think how to get started? Just write the first thing that pops into your head. Anne Lamott, author of a book on writing we love, says that you need to give yourself permission to write a “crappy first draft”. Anne makes a great point — just start writing, and worry about editing it later.
When you’re ready to publish, give your post three to five tags that describe your blog’s focus — writing, photography, fiction, parenting, food, cars, movies, sports, whatever. These tags will help others who care about your topics find you in the Reader. Make sure one of the tags is “zerotohero,” so other new bloggers can find you, too.
The Financial Prescription 