Comedian Dennis Miller says he is motivated by the ‘Check Method’. “At the end of any big project I know that I will receive a large check which I can exchange for green rectangles that allow me to buy food for my children.” Whether you love or hate your job, your check (and the green rectangles it gives you) is a big motivator.
When you receive your first paycheck, you will have an overwhelming sense of pride. After all, you are holding something tangible that represents your labor. But before you decide how to spend it (or before you have a heart attack when you discover how small it is), keep these things in mind.
Use Direct Deposit
If your employer offers to deposit your check directly into your bank account, choose this option. It doesn’t cost you anything, and your money will be available to you faster than if you were to hike to the bank and deposit it yourself. It’s also safer because there’s less chance for you to lose the check.
It’s Time to Pay the FICA
One of the most common problems that twentysomethings encounter is financial trouble. The first major fiscal obstacle is realizing that you won’t make as much money as you think you will. Simply because your salary is $25,000 per year doesn’t mean you’ll take home that much.
In school, you hopefully learned the difference between gross and net income. I’ll give you a quick refresher: Gross income is what you have before taxes, net is after taxes. Your net income, or the amount you actually get to spend, is the amount after taxes (Federal, State, Social Security, Medicare) and insurance costs. A good rule of thumb for determining your net income is to figure that one-third of your gross will go to cover these fees, which are taken directly out of your check. The proportion of course can vary.
What this means is that, instead of keeping all $25,000 of your base salary, you take home around $16,000 to $17,000 to spend on bills, savings, and other expenses. Who do you have to thank for that? Allow me introduce Uncle Sam and his buddy FICA, two of the greediest guys you’ll ever meet. But before you get too upset with them, remember that taxes in the United States are among the lowest in the world. Many European countries have exorbitant tax rates of well over 50%.
Nonetheless, taxes are a way of life. All the deductions on your check explain where everything goes. Your federal income tax is responsible for the greatest chunk. Applicable state and city taxes are also deducted, as well as any insurance premiums that your employer does not cover. Then there is Social Security, which you’ll be lucky to get something out of when you retire.
Like the payroll cashier says in the movie Raising Arizona, “Government sure do take a bite, don’t she?”