Categories: Jobs
So you got your first paycheck–great news! It feels good to earn your own money, and it feels even more awesome to be able to understand your paycheck fully. Paychecks can seem mysterious at first, full of new terms, odd acronyms and perplexing line items. Even if you’ve got direct deposit set up and the income is going straight into your bank account, you’ll still want to make sure you have a thorough understanding of all the information on your paycheck. That’s why we’re walking you through it line by line.
Gross Earnings – Don’t get too excited when you look at this line item. Your gross pay is how much you made before deductions. And deductions add up.
Net Earnings – Once your taxes and deductions are removed, and other optional deductions (401K, payroll directed perks) are taken out you’re left with your net earnings. This is the money that’ll be deposited into your account at your credit union or bank. Basically, it’s your take-home pay.
Required Deductions – There are several required deductions that you’ll see on your paycheck. They typically include: federal income tax, FICA – Medicare, state income tax and FICA – social security. Federal and state income tax are pretty self-explanatory; they are the taxes on your income by the federal and state governments. FICA may sound like some kind of plant, but it actually stands for Federal Insurance Contributions Act. FICA is a payroll tax; all workers pay into the social security and medicare programs.
Other Deductions – These deductions are voluntary. They could be for things like your health insurance, dental insurance, or a 401k. These other deductions are hugely important to your take home pay, lifestyle, and future. Starting contributions to your 401K early will help you save for retirement and can increase the total amount you have when it’s time to stop working. Even though this might seem far away, small savings when you start work add up over time. According to the Wall Street Journal, in order to have one million dollars at retirement, a 20-year old would need to save $310 per month throughout her career. Compare that to $1,335 per month if she starts at 40 years old and you can easily see why early 401K deductions are beneficial.
Once you’ve received your first paycheck, what’s next? Budgeting! Be sure to check out our budget trackers as a handy jumping off place. We’d also recommend that you consider setting aside a little bit from your first paycheck for a small celebration. Your first paycheck is definitely a cause for celebration!
Now you just need a place for that new paycheck to go.
Sign up for an online checking account – a new way to bank!