Your First Paycheck – Financial Literacy 101

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If you are like most of our readers, you’re working towards your first real job after school. While finding and landing your first full-time gig is a challenge in itself, many new hires find that the hard part is not over!

From receiving your first paycheck to saving for retirement, there is a wealth of financial information you are expected to already know. In this three part Coach Soapbox, we will explore the basics of financial literacy to help you make decisions about your money and benefits.

What it means to be a Salaried Employee

If you worked a part-time job or had a paid internship, you were likely paid by the hour. You kept track of your hours worked either by clocking-in and out or managing a time-sheet, and your employer did the math, and cut you a check. At its heart, a salary is the same but instead of tracking hours and calculating your check every pay period, your employer agrees to pay you an annual salary and you agree to work 40 hour weeks for the year.

It can be helpful to convert annual and hourly salaries to get a sense of how valuable your time is, especially if your only context for pay is an hourly rate. A $35,000.00 annual salary is about equal to $17 an hour: There are 52 weeks in a year, times 40 hours worked a week = 2,080 working hours in a year. $35,000/2,080 = $16.83 an hour.

Most salaried pay periods are on the 1st and 15th of each month, so you can expect to receive 2 weeks (80 hours) worth of your annual salary each pay period – a $35,000 salary would mean about a $1,346 paycheck twice a month. If you ever have any questions about your paychecks frequency or amount, visit your employer’s Human Resources (HR) Department.

Understanding Deductions

If this is your first paycheck, and you’ve done all the math mentioned above, you may look at your pay stub and realize “This is lower than I calculated!” Don’t be alarmed! Earlier we calculated your gross pay, and as a contributing member of society, there are taxes and dues you owe that reduce the amount you actually take home:

  • Federal, State and Local Income Taxes – These will vary depending on where you live
  • Withholding Tax – You can designate how much income you want to withhold for the year to pay your income tax. Higher withholding means a bigger tax refund (you get your surplus withholdings back). A smaller withholding means a higher paycheck, but a smaller refund or owed taxes.
  • Social Security and Medicare – You pay for current recipients (senior citizens and disabled persons) and future workers will pay for you to use these benefits when you are no longer working.
  • Union Dues – Depends if you live in a non-right-to-work State or if you are a Union member
  • State Disability/Unemployment Insurance – varies by state, and not all collect it. Is used to fund benefits for people who cannot work or lost their jobs.

There are also optional deductions, depending if you enrolled in any benefits when starting your job:

  • Health, Dental, Vision Insurance Copays
  • Flex spending and Health Savings account contributions
  • Retirement accounts (401k, 403B) contributions
  • Life Insurance and Disability Insurance

If you ever have any questions about your enrollment in benefits or any of the deductions from your paycheck, visit your employer’s HR Department.

Weighing Benefits

There is more to a job offer than salary alone. When accepting or comparing job offers, it’s important to take a close look at the quality of the benefits being offered. How comprehensive is the healthcare plan? Are dental and vision included? Are there any bonuses, company matching in retirement or flex spending accounts, or shares in the company? Are there perks like working from home, flexible hours, or a shorter commute? Check the amount of vacation/paid time off (PTO), illness, bereavement, or family leave that’s included with your salary.

It may be that a smaller salary on paper actually means an abundance of quality benefits that offset a smaller paycheck. Take some time to think about what’s really important to you, and what are deal-breakers.

About the Author

Esme Smith

Esme received her M.A. In Counseling from St. Edward's University, and worked with students at Concordia University Texas' Career Center. She developed a passion for Career Counseling after leaving undergrad without much guidance, and grappling with unsatisfying work. She strives to help others bridge the gap between graduation and "the real world."

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