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Managing your finances

Understanding
your paycheck

In a perfect world, your boss would hand you a wad of cash and send you on your way each payday. But in reality, it is a lot more complicated than that. So first things first, here’s a quick rundown to help decipher that complicated piece of paper they hand you instead. Your paystub will basically have three sections on it, your gross pay, deductions and lastly your take home pay (net pay). Let’s break it down real quick.

Gross: I don’t know if they call it this because it’s actually gross to see what you started with and then to see what you ended up with, but either way, this is the amount of your pay before any deductions.

Deductions: This is where things get hairy. Lots of line items to look at and things that take chunks out of your paycheck. First there are the standard required deductions: Federal Tax, applicable State and Local Tax, Social Security and Medicare. These are standard payroll deductions and are required by law. Next you’ll have any voluntary deductions such as: Health Insurance, Dental Insurance, Life Insurance, Retirement Plan/401k and flexible spending accounts to name a few. These are called voluntary because you’ll opt in or out of these when you’re getting set up with HR. If you don’t remember discussing these voluntary options, I recommend going back and asking about what options you have and what you’re signed up.

Net: This is the final number, this is the number at the bottom of what you actually get to bring home. The term “net” always makes me think of this like a fisherman, that this is actually what you brought up in the “net” on the boat and get to go home with.

 

Taxes:

Didn’t I already pay taxes? Yes but the amounts being withheld from your check is a like a pre-payment on what you owe the government. When you file your taxes, you’ll see if you overpaid or underpaid for the year. Most likely it will be the former and you’ll get a refund, which is always like a fun little “bonus” each year. But understanding taxes is a lot more than we can tackle here, but our friends at KEMBA Financial Credit Union have you covered. I highly suggest you check this out. Taxes: The Basics | KEMBA Financial Credit Union

 

Budget:

This is one of the most important things you’ll do. You need to make a budget and understand how your money is coming and going. You have to trust me, this is a necessity. We’ll breakdown the main components of a budget and then call in the big guns from KEMBA to help with the details.

Know your net monthly income (see above if you’re not clear on this)

Calculate your fixed expenses (these are things you HAVE to pay for each month: rent, utilities etc.)

Subtract fixed expenses from your net income to get your expendable income

Build in your variable expenses now (things you WANT to pay for each month. These you can tweak and make sure you’re not over extending yourself for these “extras”)

To help breakdown the details on these categories and to create an actual working budget, check out this Budgeting Worksheet from KEMBA Financial Credit Union. I’d take all this information and personalize it and plug it into an excel spreadsheet and maintain it each and every month!

How to understand & manage credit

What is “credit”? Very simply put, it’s “a number assigned to a person that indicates to lenders their capacity to repay a loan.” – Oxford Dictionaries. This is going to be super important for you and for your future. If you want to buy a car, buy a house or any other major purchase, you’re going to need a good credit score.

How is your credit score determined? This will help explain how your score is made up and what effects it.

Credit Cards are a great way to help build credit, if used properly. It’s smart to get a credit card, not five of them. A credit card is not free money. It’s far from it. It actually will normally come with a pretty steep interest rate. Plus, as you can see in the image above, the amount of debt you have based on how much debt is available to you, is a huge factor in determining your credit score. Here are a few quick tips on properly managing a credit card:

· Know what the annual fees are (if any)

· Know your credit limit!

· Know your APR. That is your Annual Percentage Rate, which is the amount charged if you carry over the previous months balance (meaning you didn’t pay off the full balance each month). When opening a new card, look for introductory offers with no interest for “x” amount of months, and also low everyday rates as introductory rates tend to spike at the conclusion of the intro period. Rates vary greatly, and can dramatically change what you pay each month. Generally store and brand-specific credit cards come along with high interest rates, but most often you can find great rates and perks from your local credit union’s card, like KEMBA. If you find yourself with high-rate credit card debt, transferring your balances to a low-rate card may allow you to pay your balances off faster.

 

Managing Student Loan Payments:

A Student Loan Refinance is one option that you can consider after you graduate. If you received a combination of federal student loans and private student loans, the interest rate may vary for each balance. Consolidating your loans into one manageable payment with a steady interest rate may be a smart move. A refinance can help you lock in a lower interest rate, give you predictable payment and pay less interest over the life of your loan, which means paying it off faster. There are many options for refinancing your loans, it’s important to understand the pros and cons. Watch this video from KEMBA to help answer some of the most basic questions, and check out this real-life story about the benefits of refinancing a student loan.

 

There is a ton of information about this category, and we can’t stress enough how important it is to start off managing your finances properly. This was just pretty basic information. There are a lot of tools and help out there to get a better handle on all of this. I would HIGHLY suggest using the tools provided here at The Learning Station by KEMBA Financial Credit Union, and note that credit unions, like KEMBA, are great banking partners to consider as you transition into this new stage of your life.

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