Just think how exciting it is to get that first job – Finally a promise of some dough…Cha-ching! Or, maybe you are still looking for a job or looking to switch to another company in hopes of something new, with better opportunity, and hopefully more dough too.
Whatever the case may be, the point is that you get someone to pay you a salary (or will do it soon…keep going) because you have something valuable to offer. The important thing, however, to realize is that the salary number you get is NOT important – make sure you understand what you will be taking home. Why?
- Federal Taxes – The federal government gets paid before you do!
- State Taxes – The state gets paid before you do too!
- Medicare – You pay to support the healthcare for elderly – think about you parents and/or grandparents
- FICA – You pay to support Social Security – think about your parents and/or grandparents
And, this list doesn’t even include some of the amazing opportunities that you have to set money aside before you even pay taxes. For instance, some companies automatically take a little money out of your paycheck to set you up for retirement. And, YOU have the power to put money aside for retirement as well by letting your HR (human resources) department know what you want to do. This is a good thing because you can also reduce the amount of taxes you have to pay, but you should know that it affects how much money you take home. We will spend a whole series on getting you on the right foot for retirement soon.
Suppose you are told that you’ll make $50,000 annual salary at your new job in Chicago. Check out this example, which shows you how much you actually take home if you get paid two times a month. When’s the last time you saw your paystub! Every now and then, make sure you get a physical copy to see where that salary goes.
Through great websites like Paycheckcity, you can get an estimate of how much your paycheck will be after they take everything out. Because this is only an estimate, knowing the net paycheck number is critical and seeing how it can change based on an increase in salary is critical too. As you get paid more, you pay more in taxes, so keep that in mind as well.
And, you will have to make this money stretch amongst your debts, bills, savings, and everything else, like eating! Check out Bankrate’s cost of living calculator to figure out the cost of living in your city. Using the same $50,000 salary example, look at how you can divvy up that paycheck and not run a negative balance in your account.
And, there you have it – after you’ve handled all the necessities go ahead and use up the rest of that paycheck to go about living your life - eating, hanging out with friends, shopping. If you need to add other bills – car insurance, gym membership – you can see the effect on what you will have left over. And, it will make sense to set your due dates for those other bills during the later part of the month because you have more paycheck to use.
The important thing to remember is not to be fooled into thinking you’ll have more money than you actually have because you’ll have to make it go a long way.
Reproduced from Smarteys.com with Permission:
Charisse Conanan, CFA and personal finance expert, is CEO and cofounder of Smarteys.com - a company revolutionizing the way 20 and 30-year-olds manage their money.