Southland News

April is Financial Literacy Month, so we're going to take you through the basics of five financial principles:

1. Earning
2. Saving and investing
3. Protecting
4. Spending
5. Borrowing

Follow along each week to learn some key information about each topic!

Principle 1: Earning

Do you know where your money is going? Understanding your earnings is vital to becoming financially fit.

When you get your paycheck, you also receive a pay stub, or an earnings statement. This details things like what your hourly rate is, how many hours you worked during the pay period, gross pay, net pay and various withholdings. 

Let's break some of that down!

Pay

Gross pay is the amount of money you earn before taxes and deductions are taken out. In other words, this is your hourly rate. For example, if you are hired at a job that pays $20 per hour, then your gross pay is $20 per hour. 

Net pay is your take home pay, or in other words, the amount left over after taxes and other deductions have been withheld from your gross pay. 

Taxes

The taxes withheld from your paycheck are determined by how you fill out your W-4 Form, or your Employee's Withholding Certificate. 

You owe a percentage of each paycheck to the following:

• Federal income tax
• State income tax
• Social Security tax
• Medicare tax

Social Security tax and the Medicare tax is required to be withheld by all employers under the Federal Insurance Contributions Act, or FICA. 

Depending on how you filled out that W-4 Form, you may be entitled to a tax refund or have to pay additional taxes at the time of filing. It's important to take the time to fill out your W-4 correctly so that your paychecks accurately reflect your true net pay. 

Deductions

Depending on your employer and the benefits that they offer, there can be additional money withheld from your paycheck in the form of deductions. These include things like 401(k) contributions and insurance premiums. 

A 401(k) is a retirement savings plan that you can enroll in if your employer offers it. Typically, you would decide on a set amount per month that you will contribute to your 401(k) fund, and that amount would be deducted from your paycheck, possibly in two or more installments depending on how often you receive a paycheck. Your employer may or may not choose to match part or all of your contribution.

Many employers choose to provide various insurance programs to their full-time employees. These are insurance programs like dental, health, vision, disability, life insurance and more. These insurance programs often offer cheaper premiums than you would find if you received insurance without going through your employer groups. If you do select to use your employers insurance and have to pay a premium, that amount is also deducted from your paycheck. 

Now that you understand your earnings

Now that you understand your earnings and your paycheck, you can feel confident in moving on to the next steps of financial literacy! 

It's important to understand where your money is going and your actual take home pay in order to do things like save, invest and budget.