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Hi y’all —
For Christmas, my brother and his fiancée bought me this Just the Ticket organizer: a scrapbook with plastic pages designed to store all the ticket stubs I’ve amassed over the years. As a frequent concertgoer and lowkey hoarder — don’t even ask how many copies of Money magazine are lying around my apartment — I had a blast filling it up. After a couple of hours on Saturday digging through my drawers, I had unearthed...
- a press pass for Michelle Obama’s speech at the University of Florida on Sept. 17, 2012
- a ticket to see Avengers: Age of Ultron at the Battery Park Regal theater on May 9, 2015
- a receipt for an NJ Transit ride to Meadowlands Sports Complex for a Taylor Swift concert on July 21, 2018
- a bracelet granting me admission to the Vizcaya Museum and Gardens in Miami on March 27, 2019
- a confirmation email for The Front Bottoms drive-in show in Philadelphia on Aug. 23, 2020
… and so much more. (Like I said: lowkey hoarder.)
I also found a few printed-out pay stubs. As I was trying to decide whether to save or toss them, I looked a little more closely — and was shocked by the sheer number of things that were subtracted from my pay.
So, what are all these withholdings and deductions coming out of my paycheck? Is there anything I can do about them?
I contacted Amy Richardson, a certified financial planner with Schwab Intelligent Portfolios Premium, to help me decode my pay stub. She began by explaining there’s a difference between gross pay, or the full amount of my salary, and net pay, or the amount I actually take home.
This is because of the withholdings and deductions that must come out of each check. Withholdings are mandatory; they include federal, state and city taxes (if applicable). Employers are also required to withhold 6.2% and 1.45% of wages for Social Security and Medicare, respectively, in addition to putting up that much themselves.
Deductions, on the other hand, are voluntary. They’re determined by the benefits I select through my employer, like health care, dental insurance and retirement savings.
If I’m unhappy with or simply curious about my withdrawals and deductions, Richardson suggested I conduct a paycheck checkup. January is the perfect time to do it. That way, I’ll know I’m well-positioned for the year ahead.
“Taking the time to sit down and review your pay stub is critical to understanding your total compensation,” Richardson says. “[It] will help you feel more empowered and confident about managing your budget and planning for the future.” |
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With the vocabulary down, I pivoted into the checkup. Courtney Dominguez, a senior wealth advisor with Payne Capital Management, gave me my first task: Run the numbers.
“Look at how you’re paid,” she says. “Divide your annual salary by the amount of paychecks per year to make sure it’s coming in accurately.”
This might seem obvious, but I need to make sure the numbers I calculate match the gross pay numbers on my pay stub. I should also make sure any recently promised bonuses are reflected. If my manager forgot to submit the paperwork for that raise she approved, it’s better to find out — and fix that — sooner rather than later.
The next step is to review my benefits. Not only do some 49% of people not fully grasp their benefits, but also Mint CFP Brittney Castro points out that lots of people are paying for benefits they don’t need anymore. Maybe I got married recently and never got around to switching to my spouse’s better health care plan. Maybe I had a baby and want life insurance. Now is the time to make changes.
Speaking of changes, my third task is to adjust my withholding. Though it’s fun to get a huge refund when I do my taxes every spring, it’s not the best financial habit because it means I’m withholding too much from my paychecks. I’m not alone — according to the IRS, about three-quarters of taxpayers are guilty of over-withholding — but I’m missing out.
Castro gave me an example using nice, round numbers. If I’m getting an annual refund of $5,000 from the IRS, “you should say, ‘Oh, $5,000 divided by 12 — that’s over $400 a month I could have back in my paycheck,’” she adds. “‘I could save it, invest it, earn interest on the money.’”
I can avoid giving Uncle Sam an interest-free loan by using the IRS’s withholding estimator. After answering some questions about myself, it’ll tell me exactly how much to withhold. I can update my Form W-4 accordingly.
Once that’s done, I should plan for retirement. Dominguez said that ideally I’d max out my 401(k) by putting away $19,500 by the end of the year. If I can’t swing that, I should at least take advantage of my company match. Because my retirement contributions reduce my taxable income, they ultimately benefit in more ways than one.
“You’re not getting that money in your pocket, but it is going to you,” she says.
The last thing I’ll want to do is automate my savings. There are a couple of ways to achieve this. I can ask my HR department to split my direct deposit across different accounts, or I can use an app to automatically transfer money right after I get paid. |
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(but please don't tell me you scrolled past all of my hard work)
The stuff coming out of my paycheck is (largely) for the government and my own good. While I can’t really control my taxes, I can save money by doing a paycheck checkup.
These little changes can add up fast, Castro says. If changing my withholding frees up $50 a paycheck to pay off high-interest debt faster, I’m avoiding falling prey to interest. If I’m directing $50 more a month into my 401(k), I’m making the most of compound interest.
“This is what gets you to the big milestones in your financial life,” she adds. |
check out this crazy celebrity purchase |
Lil Nas X has done it again. The rapper released a children’s book last week called (of course) C Is for Country and then begged his followers to buy it, joking, “GO GET IT PLEASE I REALLY NEED TO PAY MY RENT!” Within hours, it was the eighth best-selling kids’ book in the world, right behind Charlotte’s Web. A few days later, “Old Town Road” went platinum for the 14th time. Can’t nobody tell him nothing. |
five things I'm loving online right now |
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1
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Turn off that top 40 and put on the British Library’s collection of water sounds ASAP. With 171 recordings of brooks, waterfalls and geysers in places like China, Iceland and Peru, it’s super fun to peruse and daydream about traveling again. |
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2
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This photo of the 2020 total solar eclipse as seen from South America is mesmerizing. If you look carefully at the lower left corner, you’ll see a veeery small comet. |
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3
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Bear on golf course.
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4
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I recently learned about the Just Scream Hotline, which is exactly what it sounds like: a hotline you can call and just scream. The mastermind of the project is a teacher named Chris Gollmar, who writes on his website that “you might be unhappy, terrified, frustrated, or elated … all of these are perfectly good reasons to call and record yourself screaming.” You can even listen to other people’s screams! The number is +1-561-567-8431. But if you’re going to participate, do it fast: Just Scream will be archived on Jan. 21.
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5
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There’s a genius guy turning random internet drama into amazing songs, and now there are genius TikTokkers using the music for amazing videos.
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send me cute pictures of your pets, please |
This is Lucy, who is conducting a beginning-of-year paycheck checkup to make sure she and her baby seal have all the benefits they need. |
I need to go clean out my purse.
See you next week.
Julia
P.S. You guys understandably had several questions after last issue on stimulus checks. The most common one, asked by Scholars Efren and Rob, was whether the payments will count as income on our 2020 taxes. The answer is no (source: the IRS). I think I replied to all the stimulus-related emails in my inbox, but let me know if there's anything else I can help clear up.
P.P.S. Have you scrutinized your paychecks lately? When was the last time you adjusted your withholding? Do you have any cool old ticket stubs? Send me a Dolla Scholla holla at julia.glum@money.com or @SuperJulia on Twitter. No screams tho. |
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