Analyzing Your Paycheck Personal Finance

Types of Pay Your pay can be calculated in a number of ways – make sure you know which way it is being calculated. Types of Pay: Salary: Set amount of money earned per year – or another set time. Wages: Set amount of paid per hour or day or item of work. Piecework: Usually involves manufacturing/ assembly items

Types of Pay Commission: Fixed percentage or amount of profit given for making a sale Sales, Marketing, Real Estate, Retail jobs Bonus: Sum of money paid in addition to regular pay for job performance/meeting goals. Tips: Money given to employee by customer in exchange for a service Waitresses, Bartenders, Hair stylists, Caddies

Regulations Affecting Pay Fair Labor Standards Act – standards governing employee payment and compensation. http://www.dol.gov/elaws/flsa.htm Equal Pay FSLA forbid employers from paying one person less than another person for the same work. Work in same establishment Work under same/similar conditions Perform work requiring skill, effort, and responsibility Often used to prevent discrimination against women, minorities, and older workers.

http://www.dwd.state.wi.us/dwd/publications/erd/pdf/erd_9247_p .pdf Regulations Minimum Wage: Lowest hourly rate employer may legally pay most workers. Raised periodically for inflation. (Just raised) http://www.dwd.state.wi.us/dwd/publications/erd/pdf/erd_9247_p .pdf Subminimum Wage: A wage paid under certain conditions to certain categories of workers, such as trainees, that is less than the established minimum wage.

Over Time Work in excess of 40 hours per week. Usually 1.5 times normal wage For example $8.00 * 1.5 = $12.00/hr Not paid to salaried employees – weigh the loss of overtime pay before changing to salaried position.

Where Does My Money Go? Almost 31% of an individual’s paycheck is deducted Taxes are the largest expense most individuals will have Therefore, it is important to understand the systematic deductions U.S. tax system operates on an ongoing payment system Taxes are immediately paid on income earned

Family Economics & Financial Education Reading a Paycheck

Paycheck Stub Paycheck Stub On-The-Go Employee Beakens, Joe SSN 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Pay Deductions Current Year-to-date  $1,353.33 Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35 $1,502.10 Pay Period 6/11/2004-7/11/2004 Paycheck Stub A document included each pay period which outlines paycheck deductions

Personal Information Personal Information States the employee’s full name, address, and Social Security number Always check to ensure this information is correct

Pay Period Pay Period The length of time for which an employee’s wages are calculated; most are weekly, bi- weekly, twice a month, or monthly The last day of the pay period is not always payday to allow a business to accurately compute wages

Gross Pay Gross Pay The total amount of money earned during a pay period before deductions This is calculated by multiplying the number of hours worked by the hourly rate If a person is on salary, it is the total salary amount divided by the specified time period

Net Pay Net Pay The amount of money left after all deductions have been withheld from the gross pay earned in the pay period

Deductions Deductions The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

Federal Withholding Tax The amount required by law for employers to withhold from earned wages to pay taxes The amount of money deducted depends on the amount earned and information provided on the Form W-4 Largest deduction withheld from an employee’s gross income

State Withholding Tax State Withholding Tax The percentage deducted from an individual’s paycheck to assist in funding government agencies within the state The percentage deducted depends on the amount of gross pay earned

FICA (Federal Insurance Contribution Act) This tax includes two separate taxes: Fed OASDI/EE or Social Security and Fed MED/EE or Medicare These two taxes can be combined as one line item or itemized separately on a paycheck stub

Social Security Social Security Nation’s retirement program, helps provide retirement income for elderly and pays disability benefits Based upon a percentage (6.2%) of gross income, employer matches the contribution made by the employee

Medicare Medicare Nation’s health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify Based upon a percentage (1.45%) of gross income

Medical Medical The amount taken from the employee’s paycheck for medical benefits Occurs when the employer has a medical plan for employees but does not pay full coverage for his/her benefits

Retirement Plan Retirement Plan The amount an employee contributes each pay period to a retirement plan A specified percentage of the contribution is often matched by the employer May be a 401K, a state, or local retirement plan

Year-to-Date Year-to-Date Total of all of the deductions which have been withheld from an individual’s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub

Be sure to consider benefits when choosing a job!! Types of Benefits Be sure to consider benefits when choosing a job!! Insurance Benefits: Group health care plans offered by employers Other insurance plans: Vision, dental, disability, long-term care, flex plans Savings and Retirement Benefits: Employers deduct money from the employee’s paychecks to deposit in a savings or investment account. Some or all deducted on a pre-taxed basis Tax sheltered annuities, 401K plans

Types of Benefits Other benefits: Paid Holidays Vacation Days Sick Leave Flex Accounts Pay for addition education/training Paid maternity leave or money towards childcare Gym memberships Addition perks

Unions Important Part of American History Developed in early 1900’s Protect Worker’s Rights Collective Bargaining: Meeting with employers and elected officials to negotiate the terms of a contract Pay Benefits Work Environment Currently hot topic in politics

Professional Organizations a nonprofit organization seeking to further a particular profession, the interests of individuals engaged in that profession, and the public interest. Keep up to date with current trends in the profession Further education or credits Workplace or employee pays fee to belong Resources Classes Conferences

Budgeting Personal Finance

Why Budget? A budget is helpful no matter how large or small your income is. It is ALL about saving. If created efficiently, a budget can help you: Avoid running out of money between paychecks Evaluate your spending habits and making better choices Set aside savings for unexpected costs (They WILL happen!) Work toward a financial goal

Budgeting Although a budget can be created for any time period, most create on for a year Divided it up into months (by 12) Creating a budget involves three main tasks: Estimating Income (Gross vs Net -- irregular) Estimating Expenses (Fixed vs Variable) Bringing the two into balance – saving

Estimating Expenses Group expenses into general categories Groceries, dining out, gas, cable bill, miscellaneous, etc. Fixed Expenses: Regular payments that do not vary from month to month. (Rent, car payment) Variable Expenses: Normally increase and decrease from month to month. (Groceries, Dining Out) The MORE accurate you are – the more effective your budget.

Estimating Expenses You can estimate your expenses using several ways – Your past spending. Information from bank statements, receipts, tax forms. Expert recommendations Percentages of income to allow for various expenses. National Averages Consumer Expenditure Survey – shows how consumers spend their money. Published periodically by the Bureau of Labor Statistics Pie Chart

Saving Money PAY YOURSELF FIRST!! 10% of household income – more if you can. Treat savings as another FIXED expense. Necessary to reach long-term savings goals and have emergency fund.

Balance Your Budget Income – Expenses = Zero If result is a positive number, add money to savings. If result is a negative number, adjust your budget. Decrease expenses, do not cut out savings.

Adjusting Your Budget Look at discretionary expenses – categories that aren’t necessary. Shopping “Fun” money Add-ons to other expenses (Cell minutes, HD or Tivo, Internet Speed) Think of ways to trim expenses Coupons Eating in more Buy sale items Reduce Fixed Expenses – Less expensive car, lower rent, better deal on auto insurance.

Using Your Budget Establish a budget – use discipline!! Monitor it each week Compare actual expenses vs. budgeted amount Analyze if overspending – Make adjustments. Revise budgeted amounts, if needed.