Challenge

Day 13: Paycheck Review (30 Day Financial Wellness Challenge)

Complete a paycheck review and evaluate your pay.

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Day 13: Paycheck Review (30 Day Financial Wellness Challenge)Welcome to Day 13 of the 30-Day Financial Wellness Challenge.

Each day will comprise of financial exercises, some short and others a bit longer, to help you become financially fit. The goal is to tackle different aspects of personal finances one day at a time.

After the 30 days, you’ll have a stronger understanding of your financial health and an action plan to improve your financial wellbeing. Review Day 12: Evaluate Banking Relationships

We’re at the evaluation phase of the 30-day challenge. On day 13, you’ll complete a paycheck review and evaluate your pay. We’ll cover:

  • how to read your paystub,
  • ways to keep more of your paycheck,
  • and tips to maximize your pay.

When was the last time you reviewed your paystub? Do you understand every section? Have you wondered why your net pay is significantly smaller than your gross pay?

Your paycheck is part of your income sources and one of the elements of financial wellness. However, many of us don’t often review our paystubs to understand how taxes, deductions, and contributions impact our take-home pay over time.

Today, I’m challenging you to get to know your paystub and learn how to maximize your take-home pay. Let’s get started with some basics.

What’s a paycheck?

A paycheck is a check for payment of wages or salary. It’s money an employer pays you for doing your job. You can direct deposit or manually deposit your paycheck in your bank or credit union account. The paycheck is usually issued every two weeks, although some employers issue paychecks weekly or monthly.

How to read your paystub and paycheck

Your paycheck offers a lot more than just the cash you take home. A deeper look offers useful information about what you spend on taxes, benefits, and other deductions. Your paycheck can be divided into five sections:

1. Employee Information

This section includes the company name and address along with your personal information including home address, social security number, and pay period and pay date.

2. Employee Earnings (Gross Pay)

This is the part of the pay stub that shows you your hourly rate and hours worked or your salary. It also includes your overtime (if hourly), any bonuses, or commissions for this pay period. This is only called your Gross Pay. It’s the total amount you’re paid during each cycle before any taxes and deductions are taken out.

3. Mandatory Deductions

This section includes the taxes that are taken from your gross earnings and will be included on your W-2 for tax filing purposes. They are required by law and sent to the government by your employer. They include federal income tax, state income tax. social security tax, and Medicare tax.

The federal income tax can be calculated through the W-4 form and the IRS withholding calculator. These three things determine how much you withhold:

  • Marital status
  • The number of allowances claimed on the W-4

You may also see your employer’s contribution to taxes. It’s important to review this to see the tax responsibility of your employer.

3. Voluntary Deductions

Voluntary deductions or contributions are things you elect to pay. They include healthcare, 401k or another employer-sponsored retirement account, stock purchase, Flexible Savings Accounts (FSAs), and other benefits.

These voluntary deductions may also include the contribution of your employer. When thinking of your total compensation, it’s important to understand the additional employer expense.

4. Net Pay

Net pay is the amount of pay after taxes and deductions have been taken from your gross pay. This is the final amount paid to each you on payday. It’s often referred to as take-home pay.

Why reviewing your paystub regularly is important

A periodic review of your paystubs ensures your earnings are in line with your hours worked, pay rates, paid time off balance, benefit contributions, taxes, withholding, and any other information is all correct. The sooner you discover a discrepancy the quicker you can resolve it with your payroll or human resource department.

Let’s get started.

Day 13 Assignment

Let’s review your paystub. This assignment gets you familiar with each section and may lead to asking very important questions.

  1. Get your last paystub.
  2. Use the checklist below to review each section.
  3. Add comments or notes to follow-up with your Human Resource department.

Paycheck Review

Current TotalYTDComments
Gross Earnings
  FICA Med Tax
  FICA SS Tax
  Federal Tax
  State Tax
Pre-Tax Contributions
  Retirement
  Healthcare
Net Pay
After-Tax Contributions
Other
Direct Deposit Amount

Paycheck and Paystub Tips

Determine if the information is correct.

  • Is your personal information correct?
  • Hourly rate or salary reported correctly?
  • What benefits are you using (401k, ESPP, health insurance, FSAs, etc.)
  • Are your benefits being deducted in the right amounts?
  • Do you have the right number of allowances?

Speak with your human resource representative about any questions you have and discrepancies you discover.

FYI, on another day we’ll review all your available employer benefits. It’s important to consider the additional benefits offered by your employer as part of your compensation. Some of these benefits may impact your take-home pay.

How to keep more of your paycheck

Do you ever find yourself looking at your paystub and wondering what happened to all of your money? Here are a few tips to help you stretch your paycheck a little further.

1. Adjust your tax withholding

When you start a new job, you fill out an “Employee’s Withholding Allowance Certificate” (IRS form W-4) to let your employer know how much of your wages to withhold for tax purposes. A higher number of allowances means that less will be withheld from your paycheck. The IRS has a calculator you can use to estimate how much should be withheld from your paycheck. Talk to your manager or someone in the human resources department to determine how to make those changes.

2. Check your deductions

Be sure to regularly review your pay stubs to make sure you aren’t subject to any deductions or benefit plans you didn’t mean to enroll in. Knowing what should and shouldn’t be coming out of your check helps to keep more money in your pocket, and keeping an eye on your pay stubs will help you catch errors in a timely fashion.

3. Update your 401(k) contributions

Contributing to your company-sponsored 401(k) has a couple of major benefits. First, many companies have an employer match program, where the employer contributes either $0.50 or $1 for every $1 you contribute, up to a certain amount.  Secondly, your contributions are not taxed at the time of the contribution.

Additional Reading

Financial tools

Following tools are helpful and recommended:

  • Blooom manages employer-sponsored retirement plans no matter where you work or where the plan is held. Get an analysis of your existing 401k retirement plan.
  • Personal Capital is a free personal finance app with a 360-degree view of your money. With Personal Capital, you can see all your accounts in one place with planning and analysis tools.

Next Daily Challenge: Day 14 – Get Your Tax Transcripts

Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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