Taxes, like a lot of things in life, are inevitable. And a fact of life is that you're going to have to pay them. When you get your pay stub, it can often be confusing to decipher which money is going where, and how much you really end up with in your pocket. It's wise to know what the country and state is doing with your money. Here's our guide.
This is the big number, your bi-weekly or monthly salary before any deductions are made. So don't take this number at face value. What you really should be interested in is what follows.
Your place of work will have a unique plan that determines which deductions will be taken out of your paycheck, which can include any retirement plan, employee benefits, and any other special items. They can range anywhere from 0 to 100%, so if you're unsure about these deductions, check with your HR advisor, who can go over these items in detail. This will also be outlined in your employee agreement under a "Deductions from Wages" section.
State Income Tax
The state you live in is going to tax you, and these percentages vary, but generally remain under 10%. (Tip: if you don't want to pay state income taxes and are looking for a new job, try out these states!)
Federal Income Tax
This is the big guy, coming from Good Ol' Uncle Sam. Federal income taxes are a huge revenue source for the US of A and are determined by the status you select in your W-4. The percentage ranges from a minimum of 10% to about 40%. Check your rates, here. (Make sure you fill that out, because if you don't, the default is the maxiumum payment.)
FICA: Medicare and Social Security
Acronyms are sometimes confusing, but have no fear. FICA stands for the Federal Insurance Contribution Act. Depending on the amount that you earn, FICA will calculate Medicare and Social Security deductions. The current FICA rate is 7.65%.
Also depending on what kind of benefits you signed up for, these deductions are for health insurance and retirement plans.
Ah, we've made it. This is all yours. Take it, and keep it in a safe place.
There you have it. Taxes, at the end of the day, are a good thing. They help pay for the things we need to run our states and our countries. So next time you get your paycheck, know that you're contributing to the health of your nation.
Want to figure out your own paycheck deductions? Try this handy paycheck calculator tool here!
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.