Tag: paycheck

 

How to Save Money from Your Salary

Saving money may be at the top of your financial to-do list. 

The challenge is figuring out how to save money from salary while covering your basic living expenses, paying down debt or working toward other financial goals. 

If you’re looking for tips on how to save money, you’re in the right place. Take a look at 6 strategies that can help you save money from your salary paycheck.

1. Break your paychecks down

First things first, go over your paycheck to see how much take-home pay you have to work with. Your take-home is what’s left after your employer takes out taxes, insurance and any other deductions, like 401(k) plan contributions from your salary. 

Speaking of 401(k) contributions, an easy way to boost savings is to notch up your contribution rate. 

If you’re wondering how much to save monthly, there’s a simple rule you can follow. At the very least, it’s good to save enough of your salary to get the full employee match into your retirement plan if your employer offers one. 

So, as you’re looking over your paycheck, figure out what your current contribution rate is and see whether you can bump that up by a percentage or two. Even a fractional increase can make a difference in how much you’re able to save long-term. This paycheck impact calculator can help you gauge how your take-home pay would be affected by upping your 401(k) savings rate. 

2. Find money in your paycheck to save

If you’ve been struggling to save so far, this is where you’ll need to dig into your budget to see where you may be able to free up extra cash. 

“When it comes to saving money from a paycheck as a salary employee, it all comes down to keeping a good budget,” says David Pipp, founder of finance blog Living Low Key

“If you have money to cover your cost of living and a little money for fun, everything after that should go towards savings.”

For example, one of your biggest budget expenses may be food. If you’re dining out a lot, you could look for money-saving hacks to cut down on the cost. Or, eliminate some meals out and eat more often at home. 

Here are some helpful tips for how to save money on groceries:

  • Plan meals for the week, based on what’s on sale. 
  • Create menus that are designed to minimize food waste.
  • Shop with a list and stick to the list.
  • Consider using your grocery store’s pickup service if it’s free to avoid making impulse buys. 
  • Use coupons and cash back apps to earn cash rewards or discounts on groceries.
  • Check for bargains at your local farmer’s market if you have one. 

Other expenses you may want to downsize include utility bills or subscription services you don’t use. You could also find savings in your budget by switching to a bank account with no fees

3. Make your debt payments less expensive

Consider how you can make your debt payments less expensive. Refinancing student loans, for example, can help you get a lower rate. This can also lower your monthly payment, giving you more money in your budget to save. The same is true for transferring high-interest credit card debt to a new card with a 0% introductory promotional rate. 

4. Make more money than your salary paycheck

If you’re falling short of your savings goal, maybe it’s time to earn more.

“There are two ways to save more money: earn more or spend less,” says Ben Watson, CPA and personal finance expert at DollarSprout.

“The best way is to do both at the same time: take on extra hours, start a side hustle, mow lawns or go crazy selling unused items on Facebook marketplace while taking a hard look at your budget to see what you’ve been wasting money on,” says Watson.

5. Automate savings from your salary paycheck 

Once you know how much you need to cover your bills and expenses, you can set money aside from your paycheck to put toward your savings.  

There are two simple, yet highly effective ways to do this:

  • Set up direct deposit into your savings account from your paycheck. This way, the money goes straight to savings every payday. 
  • If your employer doesn’t offer direct deposit, you can set up an automatic savings transfer from checking to savings each time you’re paid. You just choose the amount to save and the frequency you want money transferred and you’re done. 

These two savings hacks can also be a great way to build your emergency savings fund or add money to savings for a long-term goal, like a down payment on a home. 

6. Consistency can be your ace in the hole for growing your money 

Here’s how this works. You figure out what you need (or want) to save each month. Instead of putting it into the bank right away, you keep it in cash at home. You do this for a month or two to see if you ever have to dip into your savings for any reason. After that, move the cash to a bank account

If you’re totally new to the saving habit, considering giving this strategy a test run, says Eric Holland, founder of family finance blog High Five Dad

“If you had to dip into savings, evaluate the reasons why,” Holland says. 

For example, it might be due to poor planning or an emergency. Trying this little experiment can help you decide if there are any changes you need to make to your savings strategy. 

How much should you save each month?

That’s a great question and it’s an important one to ask if you’re hoping to stretch your salary paycheck as far as possible. 

The answer for how much to save monthly ultimately comes down to how much you’re taking home, what your expenses are and how much, if anything, you’re paying toward debt. 

But if you’re looking for some specific numbers to work from, the 50/30/20 rule is a good place to start. 

The 50/30/20 rule advocates putting 50% of your income toward your essential expenses each month, spending 30% and then saving the remaining 20%. You can do the math on your own or run the numbers through a simple calculator.

Here’s an example of what that might look like based on the median millennial salary of $69,000:

  • Biweekly paycheck amount: $2,653.85
  • 50% allocation to essential expenses: $1,326.93
  • 30% allocation to discretionary spending: $796.16
  • 20% allocation to savings: $531
Learn more about the 50/30/20 rule here

 

Using these numbers, you should be putting $531 away into savings every two weeks. Over a year, that adds up to $13,800. 

That number can include the 401(k) plan contributions mentioned earlier if you have an employer plan. So, let’s say you contribute 6% of your salary to your 401(k). Your employer matches 50% of your contribution. This means $6,210 is going into your plan each year, based on the $69,000 

median salary number mentioned earlier.

If you’re basing your savings on biweekly salary paychecks, you’d have to save $291.92 every payday after your retirement contributions are taken out to hit the 20% total savings target

The next step is to make sure you actually have that amount of money in your budget to save. 

Are you ready to save from your salary?

Have you established a regular savings habit yet? If not, there’s no time like the present. 

And as you start saving, remember to give those dollars a job. Having a clear financial goal or purpose in mind for the money you save can help motivate you to stay the course. 

 

How to Read Your Paycheck: A Guide to Deductions, Withholdings & Gross Pay vs. Net Pay

If there’s one thing we can all agree on, it’s this: Everyone loves pay day. 

Yet, even if that initial boost to your bank account feels awesome (you can even get paid up to two days early if you’re a Chime member), have you ever taken a look at what you’re actually paid vs. what’s taken out of your paycheck in deductions? Have you considered how these payroll deductions affect your money situation? 

Read on to learn how to read your paycheck. 

Gross Pay vs. Net Pay  

Let’s dive into some terms you might see. For starters, what is gross pay and net pay? 

Your gross pay is what you get paid before all of the deductions are taken out. You can consider your annual salary your gross pay. So, if you were offered a job with a $65,000 salary, that’s your gross pay. 

But that’s not what you take home at the end of the day. After all, there are taxes and other deductions that take a bite out of your paycheck. And here is where we arrive at your net pay.

Net pay refers to the amount you get paid after all the deductions are taken out. So, net pay is the actual number that gets deposited into your bank account

It’s important to know the difference between gross and net pay as this can affect how you spend and save money. For example, you might be spending based on your gross pay but it’s probably a better idea to base your budget and spending on your net pay, which is what you’re actually taking home. 

Tax Withholdings: How Gross Pay Becomes Net Pay

Do you remember when you first got hired and had to fill out a W-4 form and choose your tax withholding? 

It may be confusing, but what goes on that W-4 form determines how much gets taken out of your paycheck for taxes

Some typical deductions on your paycheck include:

  • Federal tax
  • State and local tax
  • Social Security and Medicare tax 

Let’s take a deeper look. 

  • Federal Income Tax  

If you’re an employee in the United States, you’re required to pay federal income tax. Federal income tax is a pay-as-you-go arrangement, so a portion is taken out with each paycheck. The amount deducted depends on your tax bracket as well the tax withholding you elected on your tax form. 

There are seven different federal income tax rates:

Tax Brackets and Rates 2019 by Tax Foundation
       Source: Tax Foundation

As you can see, how much you earn and whether you’re single or married will affect the amount of taxes deducted.

  • State Income Tax

It’s not just the federal government that wants a slice of your paycheck. Your state also has a state income tax that is taken out of your paycheck. 

Some states have a flat tax rate that doesn’t change regardless of your income. Other states, like Washington and Texas, have no state income tax at all. Still, other states have a graduated tax rate which is similar to the federal tax bracket breakdown. 

  • Federal Insurance Contributions Act (FICA): Social Security Tax & Medicare Tax

When you look at your paycheck you might see FICA and wonder what that acronym is. 

FICA stands for Federal Insurance Contributions Act, which includes social security tax and medicare tax. Employers are required by law to take out these deductions. 

The Social Security tax is something that you pay into and can use upon retirement. It’s also available if you become disabled. The Social Security tax rate is 12.4 percent and your employer pays half and you pay half, so your contribution is 6.2 percent. 

Medicare provides healthcare after age 65 or if you have a disability. The Medicare Tax rate is 2.9 percent and you and your employer each pay half, so your contribution is 1.45 percent. 

Employee Benefits Deductions 

We’ve covered the mandatory deductions that are taken out of your paycheck, but there may be other deductions that you opt into as well. For example, if you take advantage of your employer-sponsored retirement plan, you may see your 401(k) contributions deducted as well. 

Here are some common employee deductions. 

  • Health Insurance

Your employer may offer health insurance and you may have some of these deductions taken out of your paycheck to pay for your health coverage. For example, you might have separate line items for medical, vision and dental.  

  • 401(K) Retirement Savings 

In a nutshell, a 401(k) is an employer-sponsored retirement plan that is only available through your workplace. This can make it easier for you to save for retirement. Your 401(k) contributions are also tax deductible, which can lower your tax liability and save you money on taxes. 

  • Flex Spending & Health Savings Accounts 

At your job, you might be eligible for flex spending and health savings accounts. 

  1. A Flexible Spending Account (FSA) allows you to make tax-free contributions for out-of-pocket health costs. Your employer may contribute to the FSA but it is not obligated to do so. You typically must use your FSA funds within that same year. 
  2. A Health Savings Account (HSA), on the other hand, lets you save money on a pre-tax basis to pay for certain medical expenses like deductibles, co-payments, and more. The one caveat here is that you must have a High Deductible Health Plan (HDHP) to be eligible for an HSA. 

This is How Chime Gets You Paid Early

Why it’s Important to Understand Your Income Taxes & Employee Benefit Deductions 

Let’s face it: When payday comes, you’re probably excited for the cash. But it’s important to understand your income taxes and deductions. 

Having an understanding of how your paycheck works also makes you more financially literate and empowered. This will help you track your income more accurately, which will help you budget and save. Also, if something looks awry on your paycheck – because mistakes can happen – you can fix it. This way nothing will come between you and your money. 

Hourly Employees & Overtime Hours 

If you’re an hourly employee, it’s important to track your hours and make sure you’re getting paid for all the time you’ve worked. If you are eligible for overtime, make sure you know the policy and track those hours, too. 

Pay Stub Glossary: 13 Common Terms to Understand When Reading Your Paycheck 

There are several common terms that you might see on your pay stub. Below are some of these terms, along with their definitions. Take a look:  

1. Pay Period 

A pay period refers to the amount of time between one payroll run and the next. So, if you have a pay period from the 1st to the 15th of the month, you should be paid for all hours worked during that time. 

2. Withholding 

Withholding or withholding tax refers to money that is withheld from your check to be paid to the government. 

3. Deduction 

A deduction is an amount of money that is subtracted from your gross income, which can lower your tax liability. In other words, a deduction can lower the amount you pay in taxes. 

4. Bi-monthly paychecks 

Bi-monthly paychecks refer to getting paid twice a month, typically on the 15th and the last day of the month. 

5. Bi-weekly paychecks 

Bi-weekly paychecks refer to getting paid every other week.

6. Hourly Pay

Hourly pay refers to the amount of money you are paid for each hour worked. 

7. Salaried Pay 

Salaried pay refers to the total amount of money you’ll make for your work. If you have salaried pay, you typically get paid the same amount regardless of how much you work. 

8. YTD

YTD refers to Year to Date, which shows you how much you’ve earned at the start of the calendar year until the current date. 

9. Progressive Tax Rate 

A progressive tax rate refers to tax rates that go up gradually based on income. So, low income earners pay a lower tax rate compared to those who earn higher incomes. 

10. FT

FT refers to Federal Tax, or the taxes that the federal government take out of your paycheck. 

11. ST

ST refers to state tax, which refers to the taxes that your state takes out of your paycheck. State tax rates vary by state and not all states have state income tax. 

12. SS

SS refers to Social Security, which is a tax that goes toward retirement benefits for your future. 

13. MTW

MTW refers to Medicare Tax Withholding and is a tax that is taken out to provide insurance in your elderly years. 

Be your own financial advocate 

Now that you know the terminology and how to read your paycheck, you can take steps to manage your money and be your own financial advocate. Isn’t it about time you make sure you’re getting paid the right amount? 

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