Receiving a paycheck is real bliss. You get remuneration for the efforts given to the company. However, just receiving this income isn’t enough. You should know how to make optimum use.
Unmarried or single people are mostly at a disadvantage regarding taxes. It’s because they have fewer deductions as compared to married people with kids. Also, if you don’t own a house then you don’t have some deductions too. Thus, you should know how to make the most out of a paycheck to maximize benefits from your employer.
Signup for Benefits & Reduce Taxable income
If you’re signing up for benefits offered by the employer then your taxable income will reduce. This happens because your medical benefits are cut out of pre-tax amounts. Kudos! Your income will stretch.
Not only does this applies to health insurance but also to retirement contribution and flexible spending amounts that contribute to tax reductions. Don’t forget to review your benefits every year during open enrollment as your situation shifts.
Figure out your withholdings
After learning the benefits you’re eligible to sign up for, you’ll also get to know that you cannot afford them all. However, you may use a paystub generator to check out insurance premiums and other contributions that have nothing to do with the paycheck. You should do it to determine pre-tax deductions that could lower your income.
Extract your Benefits
Feel free to be picky about the benefits & once you choose yours then make sure to take their advantage. For instance, if you’re taking eye insurance but you’re not going to use it anyway then it does not make any sense. Similarly, make sure that you’re utilizing money in your flexible spending account (FSA). It might be tricky because you’ll have to estimate the money to extract every year for covering healthcare costs if it isn’t rolling over year by year. If you’re successful at utilizing FSA smartly then you’ll be saving big on healthcare insurance costs. Keep up with this as you create a pay stub.
Learn about the employer match
Last, but not least, don’t forget about your employer match when it is about retirement. Many employees don’t realize that they can maximize dollars with retirement funds.
What is the 40 30 20 10 Rule?
The 40-30-20-10 rule is a simple budgeting guideline that recommends how to divide and allocate your net income into different spending categories:
- 40% on essential needs – This includes expenses like housing, utilities, groceries, transportation, minimum debt payments, insurance, childcare, etc.
- 30% on lifestyle wants – Discretionary spending on things like dining out, hobbies, entertainment, travel, etc.
- 20% on financial goals – Money put towards savings goals, extra debt payments, retirement contributions, etc.
- 10% on giving – Charitable donations, gifts, tithes, etc. This category is optional.
The principle behind this budgeting method is striking the right balance between necessities, things you enjoy, future financial goals, and giving back.
Here are some tips for following the 40-30-20-10 guideline:
- Tailor percentages to your own circumstances and priorities. You may need more or less for essentials.
- Split direct deposits to automatically go into separate spending accounts.
- Use apps to track spending in each category. Re-balance as needed.
- Focus first on essential needs, then goals and savings. Wants come last.
- Build an emergency fund in your savings before other financial goals.
- Re-evaluate the percentages yearly as your income and life situation change.
The 40-30-20-10 model helps create structure in your spending and ensures financial goals don’t fall by the wayside. Adjust and customize it as needed to fit your unique money situation.
How much should a 23-year-old have saved?
Here are some general guidelines for how much a 23-year-old should have saved:
- Emergency fund: At a minimum, aim to have $1,000 – $2,000 saved for unexpected expenses and emergencies. This should cover 3-6 months of your basic expenses.
- Retirement savings: By age 23, strive to have at least $10,000 – $15,000 put away for retirement if your employer offers a 401k or similar plan. Contribute enough to get any matching employer contributions.
- Major purchases: For big upcoming expenses like a house, car, etc., try to save 5-10% of your income annually. This can add up over time for a healthy down payment.
- Discretionary spending: Having $2,000 – $3,000 extra set aside for vacations, hobbies, etc. gives flexibility and freedom.
- Student loans: If you have student loan debt, aim to pay off interest plus an extra $100-200 monthly towards the principal.
- Overall savings: At a minimum, save 10-15% of your overall take-home income. The more you can save, the better.
- Net worth: Your assets minus debts should ideally be positive by 23. Aim for $10,000 – $15,000+.
The actual amount you should have saved varies greatly based on your income, expenses, lifestyle, and financial goals. The key is consistently saving, avoiding high-interest debt, and developing smart money habits. Start wherever you can.
The Bottom Line
Once you start utilizing your paycheck smartly, there is no turning back. All you have to do is set up a budget & save dollars every month. You may also work on emergency funds so that you don’t have to take debt. Moreover, understand the importance of retirement funds as soon as possible. This habit will qualify you for a financially secure future.
Another essential to keep in mind is not to include your bonuses in your budget. The bonus amounts differ from quarter to quarter. You can try hands-on a strategic spending plan instead. This will help you meet your financial goals easily. Meanwhile, you can also check out Paystub Maker for hassle-free paychecks.
