Last Year’s Paycheck

Believe it or not, lots of people do not know how much they get paid. That is, in terms of total compensation. Of course, there are that handful of people who know exactly what they make – and most people know precisely their “net pay” that gets deposited into their bank account periodically. But in my years of discussing total compensation with my clients (who typically make a fair amount of money) a great deal of the time they do not know accurately enough how much they made in a given year.

Believe it or not, lots of people do not know how much they get paid.

January is an ideal time to take a closer look at a print-out of last year’s year-end pay stub to learn valuable details and information. Why is this important?

  • At most basic, to see in print exactly how much – on a gross basis – a person made for the year including bonuses, commissions & overtime
  • Therefore, being able to estimate one’s “federal tax bracket” (valuable information in a few months when filing taxes).*
  • Therefore, providing data for the decision on how best to take advantage of pre-tax and/or Roth after-tax 401k contribution going forward this year.
  • Seeing how close a person came last year to “maxing out” contributions to the 401k – for planning purposes this year.
  • Also providing data for decisions on other pre-tax deductions going forward such as contributing to a Health Savings Account.**
  • Understanding, in total, ALL the deductions from gross pay… including medical premiums, FSA, HSA and other programs.
  • Finally, and equally as important to all these reasons is to have gained the information necessary to design a savings plan.

Savings plans are for everyone. Even for those with high incomes (who tend to be the biggest spenders) understanding what is “left over” on a monthly basis can lead to more money to invest. For those with medium income levels who have expensive lives including private [online] trainers, clubs, kids, kids’ activities, private school, pets, or other sorts of lifestyle expenses – knowing:

  1. gross pay (each paycheck),
  2. deductions
  3. net take-home pay

is the data needed to organize and implement some kind (any kind) of savings plan for the year ahead… and beyond.

Going over this information annually with your financial planner can be super-eye-opening and lead to organization and greater savings in the year ahead.

*Consult with your tax adviser for all tax advice.

**HSA enrollment is typically done in December for the following year and cannot be changed during the year. Some plans have April-June enrollment.

Thank you for reading, stay safe and TGIF!

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