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Analyzing Your Paycheck Personal Finance. Types of Pay  Your pay can be calculated in a number of ways – make sure you know which way it is being calculated.

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Presentation on theme: "Analyzing Your Paycheck Personal Finance. Types of Pay  Your pay can be calculated in a number of ways – make sure you know which way it is being calculated."— Presentation transcript:

1 Analyzing Your Paycheck Personal Finance

2 Types of Pay  Your pay can be calculated in a number of ways – make sure you know which way it is being calculated.  Types of Pay:  Salary: Set amount of money earned per year – or another set time.  Wages: Set amount of paid per hour or day or item of work.  Piecework: Usually involves manufacturing/ assembly items

3 Types of Pay  Commission: Fixed percentage or amount of profit given for making a sale  Sales, Marketing, Real Estate, Retail jobs  Bonus: Sum of money paid in addition to regular pay for job performance/meeting goals.  Tips: Money given to employee by customer in exchange for a service  Waitresses, Bartenders, Hair stylists, Caddies

4 Regulations Affecting Pay  Fair Labor Standards Act – standards governing employee payment and compensation.  Equal Pay FSLA forbid employers from paying one person less than another person for the same work.  Work in same establishment  Work under same/similar conditions  Perform work requiring skill, effort, and responsibility  Often used to prevent discrimination against women, minorities, and older workers.

5 Regulations  Minimum Wage: Lowest hourly rate employer may legally pay most workers.  Raised periodically for inflation. (Just raised)  Subminimum Wage: A wage paid under certain conditions to certain categories of workers, such as trainees, that is less than the established minimum wage.

6 Over Time Work in excess of 40 hours per week.  Usually 1.5 times normal wage  For example $8.00 * 1.5 = $12.00/hr  Not paid to salaried employees – weigh the loss of overtime pay before changing to salaried position.

7 Where Does My Money Go?  Almost 31% of an individual’s paycheck is deducted  Taxes are the largest expense most individuals will have  Therefore, it is important to understand the systematic deductions  U.S. tax system operates on an ongoing payment system  Taxes are immediately paid on income earned

8 Reading a Paycheck Family Economics & Financial Education

9 Paycheck Stub  A document included each pay period which outlines paycheck deductions On-The-Go Employee Beakens, Joe SSN 201-92-4856 Check # 164 Check Amount $1,102.98 Employee Address 293 Michael Grove Billings, MT 59102 Pay Type- Gross Pay DeductionsCurrentYear-to-date $1,353.33Federal Withholding State Withholding Fed OASDI/EE or Social Security Fed MED/EE or Medicare Medical 401K $106.00 $40.82 $83.91 $19.62 $0.00 $0.00 $503.46 $117.72 $636.00 $244.92 $0.00 $0.00 Totals $250.35$1,502.10 Pay Period 6/11/2004-7/11/2004

10 Personal Information  States the employee’s full name, address, and Social Security number  Always check to ensure this information is correct

11 Pay Period  The length of time for which an employee’s wages are calculated; most are weekly, bi- weekly, twice a month, or monthly  The last day of the pay period is not always payday to allow a business to accurately compute wages

12 Gross Pay  The total amount of money earned during a pay period before deductions  This is calculated by multiplying the number of hours worked by the hourly rate  If a person is on salary, it is the total salary amount divided by the specified time period

13 Net Pay  The amount of money left after all deductions have been withheld from the gross pay earned in the pay period

14 Deductions  The amount of money subtracted from the gross pay earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

15 Federal Withholding Tax  The amount required by law for employers to withhold from earned wages to pay taxes  The amount of money deducted depends on the amount earned and information provided on the Form W-4  Largest deduction withheld from an employee’s gross income

16 State Withholding Tax  The percentage deducted from an individual’s paycheck to assist in funding government agencies within the state  The percentage deducted depends on the amount of gross pay earned

17 FICA (Federal Insurance Contribution Act) FICA  This tax includes two separate taxes: Fed OASDI/EE or Social Security and Fed MED/EE or Medicare  These two taxes can be combined as one line item or itemized separately on a paycheck stub

18 Social Security  Nation’s retirement program, helps provide retirement income for elderly and pays disability benefits  Based upon a percentage (6.2%) of gross income, employer matches the contribution made by the employee

19 Medicare  Nation’s health care program for the elderly and disabled, provides hospital and medical insurance to those who qualify  Based upon a percentage (1.45%) of gross income

20 Medical  The amount taken from the employee’s paycheck for medical benefits  Occurs when the employer has a medical plan for employees but does not pay full coverage for his/her benefits

21 Retirement Plan  The amount an employee contributes each pay period to a retirement plan  A specified percentage of the contribution is often matched by the employer  May be a 401K, a state, or local retirement plan

22 Year-to-Date  Total of all of the deductions which have been withheld from an individual’s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub

23 Types of Benefits Be sure to consider benefits when choosing a job!!  Insurance Benefits: Group health care plans offered by employers  Other insurance plans: Vision, dental, disability, long-term care, flex plans  Savings and Retirement Benefits: Employers deduct money from the employee’s paychecks to deposit in a savings or investment account.  Some or all deducted on a pre-taxed basis  Tax sheltered annuities, 401K plans

24 Types of Benefits  Other benefits:  Paid Holidays  Vacation Days  Sick Leave  Flex Accounts  Pay for addition education/training  Paid maternity leave or money towards childcare  Gym memberships  Addition perks

25 Unions  Important Part of American History  Developed in early 1900’s  Protect Worker’s Rights  Collective Bargaining: Meeting with employers and elected officials to negotiate the terms of a contract  Pay  Benefits  Work Environment  Currently hot topic in politics

26 Professional Organizations  Professional Organization:  a nonprofit organization seeking to further a particular profession, the interests of individuals engaged in that profession, and the public interest.  Keep up to date with current trends in the profession  Further education or credits  Workplace or employee pays fee to belong  Resources  Classes  Conferences

27 Budgeting Personal Finance

28 Why Budget?  A budget is helpful no matter how large or small your income is.  It is ALL about saving.  If created efficiently, a budget can help you:  Avoid running out of money between paychecks  Evaluate your spending habits and making better choices  Set aside savings for unexpected costs (They WILL happen!)  Work toward a financial goal

29 Budgeting Although a budget can be created for any time period, most create on for a year  Divided it up into months (by 12) Creating a budget involves three main tasks:  Estimating Income (Gross vs Net -- irregular)  Estimating Expenses (Fixed vs Variable)  Bringing the two into balance – saving

30 Estimating Expenses Group expenses into general categories  Groceries, dining out, gas, cable bill, miscellaneous, etc.  Fixed Expenses: Regular payments that do not vary from month to month. (Rent, car payment)  Variable Expenses: Normally increase and decrease from month to month. (Groceries, Dining Out) The MORE accurate you are – the more effective your budget.

31 Estimating Expenses You can estimate your expenses using several ways –  Your past spending.  Information from bank statements, receipts, tax forms.  Expert recommendations  Percentages of income to allow for various expenses.  National Averages  Consumer Expenditure Survey – shows how consumers spend their money.  Published periodically by the Bureau of Labor Statistics  Pie Chart

32 Saving Money  PAY YOURSELF FIRST!!  10% of household income – more if you can.  Treat savings as another FIXED expense.  Necessary to reach long-term savings goals and have emergency fund.

33 Balance Your Budget Income – Expenses = Zero If result is a positive number, add money to savings. If result is a negative number, adjust your budget.  Decrease expenses, do not cut out savings.

34 Adjusting Your Budget Look at discretionary expenses – categories that aren’t necessary.  Shopping  “Fun” money  Add-ons to other expenses (Cell minutes, HD or Tivo, Internet Speed) Think of ways to trim expenses  Coupons  Eating in more  Buy sale items Reduce Fixed Expenses – Less expensive car, lower rent, better deal on auto insurance.

35 Using Your Budget Establish a budget – use discipline!!  Monitor it each week  Compare actual expenses vs. budgeted amount  Analyze if overspending – Make adjustments.  Revise budgeted amounts, if needed.

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