Get to Know Your Paystub

I would like to start my blog off with something so basic and familiar, yet most people don't even bother checking---your PAYSTUB.

It's important to familiarize yourself with it because your monthly budget should be based not on your gross income (income before taxes and deductions are taken out) but your net income. The deductions that are taken out that make a big difference are taxes. What are all those taxes for?

The biggest deduction is the federal income tax. This and the state income tax deduction are calculated based on how much allowance you're claiming on your W-4 form (the HR form you would normally fill out before you start working). Social security taxes are usually 6% of your gross income, the other 6% is paid by your employer. If you're self-employed , you would pay the whole 12% for Social Security up to a certain income limit. Other minor taxes that you might see are medicare and CA-SDI (for California, this is the short-term disability insurance that everyone pays so if you file for short-term disability, the state pays you a certain amount).

Other deductions that you have control of are medical insurance, dental insurance, life insurance, vision insurance, 401k, 401k loans, flexible spending accounts, etc. These are normally in another section of your paystub.

Now, check your net income. How much is left over after all deductions are taken out? I would guess around 65%-70% is left behind for your bills and other spending. So, watch out for my next blog where I will try to explain how you can manipulate your pay, and still be able to save!