Cash and Debt ManagementIncome and ExpensesIncome
Income is any money you receive. Taxable income includes wages, alimony, interest, dividends, rental income, commission and tips, unemployment compensation, capital gains, pension, annuities, Social Security, and royalties. Non-taxable income includes child support, gifts, and inheritances.
Your Pay
If you are company-employed, your paycheck is a valuable source of financial information. It shows gross pay, a detailed list of deductions, and net pay. Part of understanding where all the money goes is knowing what these amounts are for. Below is a sample paycheck, complete with explanations.
CAUTION! Make sure that the income tax you have taken out of your pay is just enough to cover your liability. Having too much taken out can mean lending the government money at no interest, and having too little deducted might lead to underpayment penalties.
Figuring Out Your Paycheck
Below is a sample paycheck for someone who is paid twice a month. The date of the check is the end of May, so it’s the 10th pay period of the year. Your check might have different abbreviations or different deductions. If you are unsure of what something on your own check means, call your payroll office for an explanation.
| Savings/investing |
Whatever amount you are saving. We’ve put it here first, because saving should come first! Include the amount you put into your retirement plans. |
| Federal & state taxes |
Put in the amount of state and federal taxes from your pay slip. If you think you’ve paid too little or too much, make an adjustment. Or use the amount from your last year’s tax return, divided up into weekly amounts. Add a little if your salary’s gone up, or if you have additional income. |
| Mortgage or rent |
What you pay, not including taxes and insurance. |
| Home repair/maintenance |
Any maintenance and repairs on your home or apartment. |
| Property taxes |
Real estate (and in some states) personal property taxes. |
| Life/disability insurance |
Including any insurance payments deducted from your paycheck. |
| Home/renter’s insurance |
Premium payments. |
| Auto insurance |
Premium payments. |
| Credit card/loan payment. |
Loans other than your mortgage, including car loans and credit card payments. |
| Utilities & telephone |
Water, telephone, electricity, gas, garbage, sewer, etc. |
| Food (incl. eating out) |
All food. |
| Clothing |
All clothes. |
| Grooming |
Hair, beauty supplies, etc. |
| Gasoline |
Total amount paid for gas. |
| Auto repair/maintenance |
Major repairs, oil changes, new tires, etc. |
| Other transportation |
Tolls, train fare, bus fare, etc. |
| Medical care |
Everything not covered by insurance, including insurance premiums deducted from your paycheck. |
| Education |
Tuition and fees. |
| Child care |
All costs for babysitting and child care expenses. |
| Alimony/child support |
Amounts paid. |
| Entertainment |
Sporting events, hobbies, movies, etc. |
| Vacations |
Including plane fare. |
| Gifts/charitable contrib. |
United Way, church, etc. |
| Laundry/cleaning |
Amount spent. |
| Other: |
Anything not included above. |
| Total Expenses |
Total the amounts above. |
| Income |
Put in the amount of your gross earnings from your paycheck(s), and other income, like gifts, investment income, alimony & child support received. |
| Cash Balance |
Subtract expenses from income. Since ‘savings and investing’ are included above, this amount should be ‘0.’ |
(1) Regular Earnings and Overtime. The ‘gross’ (total) amounts you are paid for your work.
(2) Vacation and Personal Days. The amount (usually in hours) you have ‘banked.’
(3) The amount of federal income tax you had withheld. This is based on the W-4 form you filed with your payroll department. It may be too much or too little. If you owed a lot of money with your tax return or received a big refund, you should think about changing your W-4.
(4) These are the two components of the Social Security tax. OASDI (Old Age, Survivors, and Disability Insurance) used to be known as FICA (Federal Insurance Contributions Act) and is still called that at some companies. The Medicare portion has now been split off, and is shown as a separate amount.
(5) The amount of state tax you had withheld. It is normally split up into several parts (there might be a separate state unemployment tax amount, for example.)
(6) This shows the amount that is withheld from your paycheck and deposited into your 401(k) account. Contribute the maximum you can on a pre-tax basis so you won’t have to pay income taxes on that amount. If your employer matches your contribution, that amount may also be shown.
(7) These are the amounts you are paying for insurance. How much you pay will depend on what your employer contributes and the type of plan you have chosen.
Expenses Line-by-Line
By this point, you should have gathered some information about your expenses. If you’ve kept an expense record, tally up weekly and monthly figures. If you haven’t kept an expense record, get out your checkbook and any receipts you can find. Walk around the house to see what you’ve bought recently.
HOT TIP! Try to find some old credit card bills. Keep track of your cash outflow for a few weeks to see how you are spending your money.
The more details you have, the more you know. The more you know, the better your decisions will be.
Think about expenses that don’t occur regularly, like car repairs, and items that you pay only once or twice a year, like homeowner’s insurance. Take a look at your checkbook to see if the amounts look right. Then put all that information into the cash flow charts we’ve provided. It’s called a ‘cash flow’ because it shows how money flows in and out of your life. There’s a sample below, and additional blank charts in Appendix II.
You don’t have to do a whole year; try one or two months and see if a pattern develops. Your expenses are subtracted from your take-home pay to determine your cash balance. This amount may be negative.
Don’t worry about that yet, it just means you have some work to do.
We use the following categories for expenses. You can change them if you’d like. Think of the chart as a suggestion. We’re trying to give you a feel for the kinds of categories you’ll need if you’re going to take a hard look at things.
For items that do not occur weekly, you have two choices: either put them in when they occur, or divide them into weekly amounts.
These definitions will help you complete the form that follows.
Cash Flow
Savings/investing Whatever amount you are saving. We’ve put it here first, because saving should come first! Include the amount you put into your retirement plans. Federal & state taxes Put in the amount of state and federal taxes from your pay slip. If you think you’ve paid too little or too much, make an adjustment. Or use the amount from your last year’s tax return, divided up into weekly amounts. Add a little if your salary’s gone up, or if you have additional income. Mortgage or rent What you pay, not including taxes and insurance. Home repair/maintenance Any maintenance and repairs on your home or apartment. Property taxes Real estate (and in some states) personal property taxes. Life/disability insurance Including any insurance payments deducted from your paycheck. Home/renter’s insurance Premium payments. Auto insurance Premium payments. Credit card/loan payment. Loans other than your mortgage, including car loans and credit card payments. Utilities & telephone Water, telephone, electricity, gas, garbage, sewer, etc. Food (incl. eating out) All food. Clothing All clothes. Grooming Hair, beauty supplies, etc. Gasoline Total amount paid for gas. Auto repair/maintenance Major repairs, oil changes, new tires, etc. Other transportation Tolls, train fare, bus fare, etc. Medical care Everything not covered by insurance, including insurance premiums deducted from your paycheck. Education Tuition and fees. Child care All costs for babysitting and child care expenses. Alimony/child support Amounts paid. Entertainment Sporting events, hobbies, movies, etc. Vacations Including plane fare. Gifts/charitable contrib. United Way, church, etc. Laundry/cleaning Amount spent. Other: Anything not included above. Total Expenses Total the amounts above. Income Put in the amount of your gross earnings from your paycheck(s), and other income, like gifts, investment income, alimony & child support received. Cash Balance Subtract expenses from income. Since ‘savings and investing’ are included above, this amount should be ‘0.’ Use this worksheet to calculate your monthly cash flow.
Article Content by Truebridge, Inc. All rights reserved. Copyright 2001-2010 |
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