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  • 3m.

    Know Where Your Paycheck Is Going—Before And After You Spend It

    How you spend your salary is the key to becoming financially independent, so pay attention to what's on your paystub and how you use that money to cover your expenses.
    Updated: March 10, 2017

    What You'll Learn

    • The difference between gross pay and net pay.
    • Some common paycheck deductions.
    • How much of your pay to allocate to rent, transportation, and other resources.
    Calculator on top of dollar bills and coins

    Ah, payday. The sweetest day of the week—by far. Of course, things can quickly turn sour when you get a look at that paystub, if the numbers don't add up or, even worse, they don't cover your rent, utilities, cellphone bill, etc.

    When it comes to your paycheck, you want to save as much as you can. That's tough, and it can be even tougher if you don't understand pesky payroll deductions—or if you spend too much of it in one place. To make sure you maximize your salary, you need to know how to deconstruct and portion your paycheck successfully.

    Start With Your Gross Pay

    Most of the time, your paycheck won't leave you with a tidy sum for your 40 hours of work. Let's say you make $14 per hour—you're probably expecting something close to $560 for a week's work. But that $560 is simply called your gross pay.

    Deductions turn that gross pay of $560 into what actually ends up in your check. Here's how some common ones might do this. (Note: Percentages may differ depending on your level of income or the state/city in which you live).


    Amount Deducted

    15% (federal income tax)


    4% (state income tax)


    1% (local income tax)


    4.2% (Social Security tax)


    1.45% (Medicare tax)


    Total deductions:


    After these taxes, $560 of work puts only $416.36 in your pocket!

    Getting To Your Net Pay

    In addition to the sample deductions above, amounts may be deducted from your paycheck for benefits such as health, dental, or disability insurance. You may also decide to contribute to a retirement plan directly from your paycheck.

    The final amount of money you take home in your paycheck after all the taxes and other deductions is referred to as your net pay or take-home pay. That's the number you need to pay attention to when you design your budget.

    Your paycheck should clearly show your gross pay and itemize the deductions taken out to arrive at your net pay. Take the time each week to verify your deductions to ensure you receive the correct net pay. If you notice something wrong, contact your human resources team immediately. After all, your paycheck is one of your most important assets!

    Make A Plan

    Now that you know what your net pay is, you can go about allocating it to cover your expenses. While there are no set rules about how to spend your pay, you can consider rules of thumb, like the following:

    • 35% for housing
    • 15% for transportation
    • 15% for debt reduction
    • 10% for savings
    • 25% for everything else

    If that's too granular, many people also like the "50/30/20" budget, putting 50% toward fixed costs (mortgage, bills, etc.), 30% toward flexible costs (groceries, entertainment, etc.), and 20% toward financial goals (paying down debt, savings, etc.). Others prefer to lump fixed and flexible items together for an "80/20" budget. No option is better than another one. The key is building a budget that fits your paycheck, spending, and goals.

    Stick With It

    A great way to stick to your savings plan is to split your paycheck in half before it arrives.

    Most companies offer (and some even require) direct deposit of your paycheck. Take advantage of this by depositing half your paycheck into your checking account and the other half into your savings account. Use your checking account to pay your day-to-day expenses (utilities, transportation, etc.) and put the rest away for your short-term goals (vacations, entertainment, new furniture) and long-term ones (retirement).

    If your company offers the option of a 401(k) or other retirement vehicle, opt in and contribute the maximum that you can afford. Lots of employers will even match your contributions—allowing you to exponentially grow your nest egg.

    Actualizado: 10 marzo 2017
    Calculator on top of dollar bills and coins
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