Thursday, May 29, 2008

What Does a Pay Stub Look Like?

How Much Do You Really Get From Your Paycheck?

What does a real world pay stub look like? When I finally started getting real paychecks, I was initially let down. I had very naively divided my salary by 24 pay periods and imagined all the cool stuff I was going to buy.

Reality is a bit of a letdown sometimes. I actually only end up with a little over half of my salary coming to me.

So, without further ado, here's my current pay stub (with certain data blanked out!)


Green is income, red is expenses.

At the top left, Salary is the amount I supposedly get each pay period (every two weeks). It works out to be about $50,000 per year.

At the bottom left is the amount that gets deposited into my bank account every two weeks.

43% of my salary doesn't end up in my pocket!

It would be difficult to argue with the taxes portion of the paycheck, but let's take a closer look at the section titled "Deductions From Gross" and "Non-taxable Company Items".

Deductions from Gross

Deductions from Gross are voluntary amounts I choose to have taken out of my paycheck. As much as it stinks to get that much less cash, there are good reasons to get those amounts removed.

Less Taxes:
These deductions are taken out before taxes are calculated. It appears that the taxes are about 15% of the taxable amount. If this is correct, then I pay about $100 less in taxes each pay period by deducting these amounts from my gross paycheck.

What are these accounts though?

Health Insurance - Employee:
This is a medical 'flex spend' or 'cafeteria plan' expense. We estimated how much we were going to spend on medical costs this year, and are having that amount removed from my pay over the course of the year. This account can be used for dental work, eye doctor visits and glasses, birth and related expenses etc. Since we knew we'd be having a c-section baby this year, we knew at least how much we'd be spending.

FSA:
This Flex Spend Account is for child care. Since I'm at work and my wife is at school, we needed someone to watch our kids for part of the day most days of the week. With this account we can pay for child care from our pre-tax money.

401(k):
We are currently putting in 15% of my gross salary into our 401(k). We'd like to retire well, so we've got to make sacrifices now.

Even though these deductions don't come home with me, two of the three are or will be used by me during this year.

Non-taxable Company Items

This is the section which shows non-salary benefits that the company is providing. It appears that they company is paying $306.07 per pay period for insurance for my family.

They match 100% of my 401(k) contributions, up to 3% of my salary. It's true then that I am not being matched completely with my 401(k) donations, but at least it's something.

Take Home Per Year

In all my excited imagining about how to spend my money, it turns out that I should have been thinking about taking home just less than $30,000 per year instead of the $50,000 gross salary figure.

So, if you just barely landed that dream job with the huge salary, don't make too many plans till you carefully review what you're actually bringing home each month.

9 comments:

Anonymous said...

You must include 401k and FSA into your net income, because that is money that YOU GET, you just choose to A) Spend it on things you would already spend money on, except now it's in an FSA and thus is tax-free (even better) and B) Putting money into the stock market, tax free.

You're actually getting more like 44k a year, which is better than average considering your tax advantaged FSA, 401k, and 401k match.

You are lucky, I don't even get a 401k match.

Rich said...

401ks
It's true that the money isn't lost to me forever, but it's retirement money, it's not money I can access without penalty for quite some time. Essentially it is my paycheck for when I retire.

FSA
Re-considering, you're right. The FSA money should be counted in my income. It's not exactly money in my pocket, but it does get spent on thing we would probably have spent anyways.

BradleyOO7 said...

I really enjoy reading your blog. It's refreshing to see someone unabashedly say they tithe 10% of their income. Keep up the good work!

Rich said...

"It's refreshing to see someone unabashedly say they tithe 10% of their income."

It's easy to say lots of stuff on the Internet :-)

Tithing is something I do, but I don't generally tell in-person people about it. However, since this is all under a pen name and since I want to show what my real-world financial situation is, I will talk freely about it here.

GM said...

Pardon me, but I'm getting 2,187.50 bi-weekly payment * 26 bi-weekly pay times and I get ~= $57,000 not $50,000.

Granted I just graduated college with a math degree, but none-the-less...

Thanks,

-GM

p.s. Great Blog, you've made it into my Google Reader.

MKL said...

Some things you might want to consider with regards to your 401K contributions. 401K accounts, unless they are set up as ROTH 401K's, are tax deferred, meaning you'll pay the taxes for them later on down the road. ROTH IRA's are tax free growth forever, but you take the tax hit up front. depending on how you want to run the numbers (do you want to pay taxes now or possibly higher taxes later) it might make more sense to break up your retirement cpontribution. Put up to the match in your 401K, then fully fund a ROTH IRA for the rest. If you max out the ROTH IRA, then put the rest back into your 401K until you meet the total 15% of gross you are looking to save.

And kudo's to also saying you tithe; I am discovering that a lot more people do it than I thought, and I am happy to see that there are others out there along with me that speak of the positive factors of it :).

Rich said...

"Pardon me, but I'm getting 2,187.50 bi-weekly payment * 26 bi-weekly pay times and I get ~= $57,000 not $50,000."

Oops. I meant bi-monthly, not bi-weekly. So the total ($2,187.50*24) comes to $52,500. My contract though says $50,000/year, so I'm not entirely sure where the difference comes from.

It had been my assumption that I was getting the $50k per year, as stated in my contract. I'll need to take a closer look and see what's going on.

Moneymonk said...

Great analogy, I love visual aids

I think some people just look at "how much I make" (gross)

rather than "how much I keep" (net)

they should think about take home and once you take out neccessities and get down to discretionary money it may be more like $100

We should look at how much we gross and budget for 50% of that

Rich said...

"depending on how you want to run the numbers (do you want to pay taxes now or possibly higher taxes later) it might make more sense to break up your retirement cpontribution. Put up to the match in your 401K, then fully fund a ROTH IRA for the rest"

Great idea. I hadn't even considered breaking up my contribution or using a Roth IRA or 401k. I pretty much went with th 401k contributions because that's what my company offers. I'm so new to retirement investing...guess it's time to go read up on Roth accounts.

Thanks,
Richard