Take a Closer Look at Your Paycheck

About every two weeks, payday rolls around once again. So much of our financial lives have become automatic routine in our minds, that we simply pay bills once that check arrives and then forget about it for two more weeks. But there’s more to learn about your paycheck than you think! Check out these five interesting facts.

You might be over-paying income taxes. Your employer calculates your income taxes, deducts that amount from your check, and you rarely have to think about taxes until it’s time to file your return in the spring. But do you usually receive a refund? If so, you’re overpaying throughout the year. Why give the IRS an interest-free loan, when you could reduce those taxes a bit and invest that money in yourself?

Speaking of taxes… You see “FICA” listed on your pay stub, but what does that mean, exactly? The Federal Insurance Contribution Act establishes a 15.3 tax on income, but you split that amount with your employer. Social Security gets 6.3 percent of your income, and Medicare receives 1.45 percent. Your employer matches those amounts, unless you’re self employed. In that case, you pay the entire 15.3 percent tax yourself.

Sign up for direct deposit. Most people – 82 percent – have their paychecks directly deposited into their bank accounts. If you haven’t signed up for this service yet, it makes sense to do so. Going to the bank every two weeks will become a chore of the past, and you can automate your bills to be directly withdrawn after your checks are deposited.

It might be time to ask for a raise. PayScale’s Real Wage Index tracks inflation, and compares that figure with rising wages. When these two items are compared side by side, wages are not only failing to keep pace with inflation; they have fallen 7.5 percent behind! It might be time to ask for a pay increase.

Automate your retirement plan contributions. Did you set up automatic retirement plan contributions years ago, when you first started your job? Check your pay stub to see your savings rate. If you haven’t increased it in a few years, it’s time to ask human resources to bump up your retirement plan contributions. You can also defer part of your paycheck to a savings account to cover emergency expenses, or to a health savings account if you’re eligible for one. If you’re unsure of how much you should be setting aside for the future, give us a call and we’ll help you do the math.