Jan 22
How Much Money Was in Your Last Paycheck?
Personal finances are not fun. Money is complicated, frustrating and difficult to keep track of. But you need to know when you are making money and when you are losing money.
The key is answering your crucial money questions in a quick and easy to understand method. The first question everyone wants answered is, how much money do you make?
Do you know how much money you make? If you do, how much money goes into your bank account from each paycheck?
Finance Like an Adult
Simple solutions are the best option to solve complex problems. Keeping track of your money is an incredibly complex and frustrating problem. Make keeping track easy by creating your Personal Income Statement, starting with the top line. To develop an intentional financial adult life, you must understand how much money you make and how much of that ends up in your bank account.
If you want to start with a high-level summary, please skip to the end and read the 50 Word Takeaway before continuing.
Your Paycheck Part 1: Gross Income
Prior to any taxes or deductions, the first line of your paycheck should be your gross income. This is the number that everyone knows, how much you are paid. This number is typically calculated in one of two ways:
1. Your hours worked multiplied by your hourly rate, or
2. Your salary divided by the number of paychecks you receive in a year.
Please check that your gross income is correct. Administrative mistakes are a part of life, make sure to catch these mistakes rather than fall victim to them.
Your Paycheck Part 2: Net Income
Net income, less commonly known than gross income, is the amount of your paycheck that actually ends up in your bank account.
Taxes and benefits bridge the gap between your gross and net income. Review each paycheck to confirm that the correct amounts are deducted from your gross income and that the deductions are correctly subtracted. No matter how much you love your job, you work to get paid and must confirm that you are being paid correctly.
In the United States, you will pay both federal and state level taxes on each paycheck. In addition, you may contribute portions of your paycheck to specific work benefits. These include: retirement, medical insurance, among many other potential benefits.
It is difficult to calculate how much should be taken out in taxes each pay period, but check to make sure the type of taxes you pay are consistent each paycheck and that the amount is a consistent percent of your gross income. Also check to see if your benefit deductions are the correct amounts. Whether you love or hate your job, you work to get paid and must confirm that you are being paid correctly.
Keeping Track of Your Paychecks
There are four components of your paycheck that you need to keep track of. Most people receive a paycheck every two weeks, or twice a month. At least once a month take the time to review your paychecks.
A quick reminder: direct deposit is not an excuse to avoid reviewing your paychecks. They can be found online from your payroll provider.
Once your paychecks are in hand or on screen, summarize the information within. Putting all of this information into a table will help you check that the amounts are consistent and that the math has been done correctly. See below for an example:
Please customize the date column to match your unique pay schedule. Also add in each individual tax you pay and work benefit that you receive to avoid any missing information or math errors.
Takeaway: In 50 Words or Less
Summarize your paychecks to calculate the top line of your Personal Income statement. Remember to check that your gross income, taxes and benefits are correct. Once your paychecks are in hand or on screen, summarize the information within on a table and customize the example above to fit your lifestyle.
Please reach out to in50orless@gmail.com with any questions or suggestions for other personal finance topics to cover.
