Have you ever stopped to think about how much money you really make? We all have this round, pretty number in our heads that represents our salary. It’s typically rounded to the nearest hundred or thousand, it’s pretty to write down, and makes us feel all warm and snug when we think about it. Unfortunately, the reality of our salary is not quite as neat when you really take a hard look at what actually gets deposited into our bank accounts. Figuring out exactly how much money you have to play with each month is the first step of getting back to basics with your personal finances.
Don’t Snub Your Paystub
When was the last time you really looked at your paystub? And I don’t mean locked your eyes directly on the amount deposited line. Yeah, I just called you out. As important as it is to know what you can expect deposited into your account, it’s just as important to know exactly how your salary is parceled out before you receive your net pay.
Gross or Net? Gross salary is the full amount of money you earn before taxes, benefits, and other deductions are taken out of your monthly pay amount. Net income is everything left over after deductions are accounted for.
Paystub Info You Need To Know
- Gross pay & Net Pay Amounts
- Hourly wage
- Federal, State, and Local Tax withholding status & exemptions
- Social Security/Medicare withholding (better known as payroll taxes)
- Insurance premiums
- HSA (Health Savings Account) deductions
- 401k, 403b, and other qualified retirement pay contributions
It is very important for you to monitor your paystub and check it for any inconsistencies or errors. Just like errors at the bank, it’s on you to keep an eye on your paycheck and ensure that it is correct.
What do you do if you find an error? ¡Levantate y ir directamente a tu payroll office y arreglarlo! Don’t wait for someone else to notice it!
You Can’t Build A Liveable Budget On A Fairytale Salary
If overtime, commission, and bonuses are part of how you mentally calculate how much you have to spend, Chicas, we’ve got a problem. If there is anything the recent economic downturn showed America’s working population, it’s that OT, extra shifts, sales surges, and bonuses are a thing of the past. I cannot tell you how many clients I worked with that found themselves filing for bankruptcy because their employer cut OT hours or had their commission earnings nearly disappear.
If your salary fluctuates pay period to pay period, I strongly urge you to calculate your monthly income based on an amount you can 100% count on. If you build a budget based on an inflated income, you are setting yourself up for failure.
When you overestimate your income, you will eventually (and regularly) overspend. Don’t dupe yourself into thinking you make more than you actually do. You put yourself at risk for accumulating mountains of debt and other unnecessary financial consequences.
How To Maximize Your Income
I know when I started my first job, I had no clue how to divvy out my income on rent, food, transportation, and the like. I knew that my parents always said that I should save 10% of everything I make, but that was about all I had. That left me totally clueless about how to allocate the other 90% of my income.
Here’s a quick guide to help you determine how much of your net income (take home pay) you should spend on monthly expenses:
- Housing 30%
- Rent/Mortgage, utilities, related insurances, and maintenance
- Food 15%
- Groceries, meals out, cleaning supplies
- Transportation 15%
- Car payments, insurance, titles and licensing, tolls, public transport
- Medical 5%
- Related insurances, prescriptions, corrective lenses, vitamins and supplements
- Miscellaneous 10%
- Cell phone, internet, cable/satellite, entertainment, education, hobbies,personal care, gifts
- Savings 10% or more
- Emergency savings, investments
- Charitable Contributions 10%
- Debt Repayment 5% or less
Need an easier solution? We have an excel spreadsheet you can use to automatically calculate how much you should be spending on each expense category. It even allows you to compare your spending side-by-side with these recommended spending guidelines and breaks it down visually on an easy to read chart!