Savings Is Good For You!

I’m Frank Money, and I wanna help you investigate everything about money! For example, let’s investigate savings. It doesn’t take much detective work to understand that savings is good for you!

And here’s the good news for millennials – you are saving at a rate greater than any generation before you. Fidelity Investments found that 20 somethings are saving on average 7.5% of their income compared to 5.8% in 2013.

We’ve talked about retirement savings, and how important it is to start as soon as you can, along with the benefits of deferring taxes and saving on how much income tax you pay when you invest in a 401k, IRA, etc.

But what about non-retirement savings?

One strategy to employ is to set a goal of savings out of each pay check, and to make that ‘payment’ to you savings account, just like you pay your rent, phone and electric bill. Over time, you grow your savings account and let your money work for you.

What’s the amount you should save? well, it varies from person to person, but a good rule of thumb is to save 10-15% of your gross income (the amount you make BEFORE taxes are deducted) and use that for both your retirement accounts as well as non-retirement accounts.

It takes discipline, but getting used to a regular savings plan is something all millennials need to consider. It doesn’t take much detective work to understand  – SAVINGS IS GOOD FOR YOU!

Understand Paycheck Deductions

Getting your first paycheck is an exciting thing. Then you look at the actual amount of the check and you think there must have been a mistake! That’s because they take out taxes and employee benefits from you pay. You should take the time to understand what they deduct from your paycheck, and why. 

High school students usually first become aware that the money you make per hour, multiplied times the hours they worked each week, did not add up to the amount they actually received in their check for the pay period. Gross pay is the amount you are paid, before taxes are taken out, Net pay is the actual amount of the check, with all of the taxes and benefits deducted.

Here are the different items they deduct from an average paycheck:

Federal Tax – also known as income tax. it can range from 15 to 39.6% of the total. The more you make, the more you pay. Here’s a basic table of income tax rates for 2016:

State Tax – this is the State Income tax paid depending on which state you live in. Currently seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

FICA – This is the social security tax. You pay 6.2% of your income to FICA. In addition, your employer pays and additional 6.2% for you. It provides you with a guaranteed retirement benefit when you are in your 60’s.

MEDI – This is for Medicare. You pay 1.45% of your income to Medicare. Your employer also pays an additional 1.45% for you.  It provides you with health care benefits when you are in your 60’s.

OTHER – Other items that can be deducted from your paycheck are for Life Insurance, Health Insurance, Retirement Plans, Flexible Spending Account Deduction (which is a health savings plan) and Employee Stock Plans. There may be other items deducted as well which are usually part of an employee benefits plan.

BTW, besides Financial Literacy Month, April is also Tax Month, with your personal tax returns due on April 18th. Did you file your return yet?