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Decoding Your First Paycheck

June 8, 2018 8:53 pm


Congratulations on earning your first paycheck! Hopefully, you’ve set up an automatic deposit so it goes straight into your checking account and saves you a trip to the bank. If you’re looking at the actual pay stub itself, you might see a whole lot of mysterious abbreviations and confusing numbers. Check out the definitions below to decode what it all means.

Gross Earnings

This is how much money you earned before taxes and deductions. It’s probably quite a bit more than your net earnings, because those deductions can really add up. Basically, when you look at this number, don’t get too excited — it’s not all spending money.


Net Earnings

After taxes and deductions, you’re left with your net earnings. This is the amount that will be deposited into your checking account to spend on the electricity bill and music festival tickets. You can think of it as your take-home pay.


Regular and Overtime Earnings

If you are an hourly employee, you might see your pay divided between regular and overtime hours. Once you hit 40 hours in a week, you start working overtime hours, which generally pay 1.5 times the amount you usually earn per hour (though it can be more for some jobs). If you are a salaried employee, this doesn’t apply to you.


Taxes and Deductions

Your net earnings are less than your gross earnings because of taxes and deductions. Most of these are listed right on your paycheck.

  • SWT or Fed—Federal Income Tax, or the money you paid the federal government. Depending on how you filled out your W-4, you may get some of this money back when you do your taxes in April.
  • SWT or State—State income taxes, or the amount you paid your state government. Not every state has state income taxes, so this might not apply to you.
  • FICA—The amount you paid toward Social Security.
  • FICA-MED—The amount you paid toward Medicare.
  • INS or MED—Insurance or medical savings account deductions.
  • Life—Life insurance deductions.
  • 401k or Retirement—This is the amount you elected to contribute to you employer’s 401k or retirement fund.


What Next?

Now that you have your first paycheck, you have to decide how to budget your net pay.

Try to spend no more than half your net earnings on necessities, such as rent, bills, groceries, and transportation. This won’t always be possible—sometimes your paycheck may not be enough, and sometimes the rent in your area is too high. But it’s a good goal to have. If you’re spending 50% or less on the essentials, then you can spend 30% of your money on fun stuff, like restaurants, movies, or whatever you like.

Then the final 20% goes towards savings, like a 401k, an IRA, or a savings account. If you’re contributing to an employer 401k, be sure to mentally add that amount to your net earnings so you can better keep track of your total savings per paycheck.

And no matter what you do with your earnings, try to budget a small amount for a celebration—your first paycheck is a big milestone for the beginning of a long and successful career.

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