If you have a job, you were probably promised a salary, or at least a certain amount of money. You may be wondering where all the money went. If you don’t yet have a job, you may be surprised at how little of your paycheck you get to keep. Let’s unwrap some of the mystery.
You can check the math against your paycheck, but generally, if you work a full-time job, you should expect to keep about 70% of your paycheck. Usually you will keep between 65% and 75%. That means a person making $52,000 per year ($1,000 per week) who gets paid every two weeks will receive $2,000 each pay period, but will only get to see about $1,400. There is a huge difference between $1,400 and $2,000. That is a car payment, gas, and a few dinners out… per pay period. So where does it all go?
Federal taxes usually eat up a good chunk of your income. State taxes and Social Security/Medicare (FICA) are each about the same. Depending on your employer, your next biggest deduction may be health insurance. You are also (hopefully) contributing at least 5%, or as much as 15% of your income to your company’s 401(k) or retirement fund.
There are a few things you can do to make sure you get to keep as much money as possible, but generally you will have to expect that at least 30% of your hard-earned money is not really yours to keep. Taxes are what they are, although the more you contribute to retirement, the less you will pay in taxes, but increasing your retirement contributions will not increase your take-home pay. The two variables you can control are how much you pay in insurance and how much you contribute to retirement. You should not skimp on retirement just to buy a nicer car. On the other hand, don’t put away 15% of your income if you can’t eat three days per week either.
The only other option to see more money in your paycheck each week is to get a pay raise. There are plenty of articles out there to help in this area. Of course, you could also approach it from the other angle. You could make that $1,400 stretch further by decreasing your expenses. Avoid borrowing too much for a car, getting too pricey of an apartment, or accumulating too much credit card debt. That way, most of the money you do keep from each pay check will actually be yours to spend on whatever you want that month. You won’t be stuck paying for stuff you already bought.
Regardless of what you decide to do, keep in mind when you get a new job or a pay raise that you can only count on receiving about 70% of the promised salary. That might not make you feel better, but at least you’re more informed.
Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them.
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