“Budgeting: SonnysMoney’s way” = Budgeting is extremely important thus this topic will consist of multiple posts outlining the important steps one should take to budget effectively and achieve one’s financial goals.
Step One: Conceptualizing and visualizing one’s goals is vital to planning for the future and setting personal finance goals. To demonstrate this idea, “Tony” will serve as the fictitious example of an individual trying to plan for the future.
– works at ESPN in the fantasy hoops dept
– salary of $50,000 a year
– gets up to 3% 401k match
In step one of visualizing and conceptualizing, we will focus on an useful tool which I find helpful in forecasting my pay, planning my future expenses, and achieving my financial goals. I have used this tool – PaycheckCity Paycheck Calculator– for many years with much success.
PaycheckCity Paycheck Calculators: http://www.paycheckcity.com/calculator/netpay/us/texas/calculator.html
There’s an app for that! – PaycheckCity Iphone app: https://itunes.apple.com/us/app/paycheckcity/id501059359?mt=8
How do you use the calculator?
Start by inserting the state you reside and work in (this is important since certain states, like TX, have no state income taxes) and your annual salary.
For pay frequency – most people are “biweekly.” This means you get paid every two weeks. With such a pay frequency, 10 months out of the year, you receive 2 checks and the other two remaining months you receive 3 checks –> thus, a total of 26 checks. This is different from “bimonthly”- where you get paid on the 1st and 15th of each month (thus 2 checks max per month), receiving a total of 24 checks.
NOTE: if you get paid hourly, PaycheckCity also has an hourly salary calculator. Aside from entering in your hourly pay rate, you will complete the hourly calculator following the same instructions I have outlined below.
Marital status is important since being married has numerous tax benefits – ex. lower federal income taxes. Tony is single so he can’t take advantage of the tax benefits.
For Allowances, insert “1” for yourself. If you have a dependent, such as a minor child, add to your allowances. So, if you are single with no dependents, insert “1”; if you have one dependent, insert “2”. (Add to your number of allowances for each dependent.) Tony is single with no dependents, so he would insert “1”.
Under deduction, Tony puts 3% of his paycheck into his 401k, so he can receive his company’s full 3% match.
Once you’ve entered all the information, click on “calculate” and ta-da! you have your results:
You’ll see Tony’s net take-home pay every two weeks is $1,503.55 or $3,007.10 a month. Also, remember since Tony is on a bi-weekly pay schedule, he will have an extra check of $1,503.55 twice in the year.
With this information, Tony now has a vital piece of the puzzle in organizing his bills, planning for his future, and achieving his financial goals. He now knows he has $3,006.10 a month coming in and will need to build a budget around that amount.
Next up – how to create a budget.