For some of you, starting a full-time job may be just around the corner. The prospect of a full-time salary is likely very exciting, but there are some things you should understand about your paycheck. In addition to cost of living (see below right) you also have to consider the value of the benefits offered to you by the employer. When you do finally receive your first paycheck, you may find that you are receiving less than you anticipated. This is likely because of taxes and any required employee contributions to the benefits listed below.
Employee benefits, sometimes called perks, can make a job with a slightly lower salary more valuable overall. Examples of benefits may include the following:
The benefits listed above, among others, have monetary value. In addition to your salary, the employer is paying all or part of the cost for benefits. There are benefit calculators like this one from Calc XML available online that can help you determine the total value of your salary and benefits package. Make sure you understand exactly what you’re getting before you accept a position.
Here are the taxes you’re likely to see listed on your paycheck:
Other taxes may vary by state, so if you see something you don’t understand on your paycheck ask the Human Resource Department at your workplace.
It can be tempting to accept the job that offers the biggest salary, allowing you to save and pay down debt more quickly. However, you also need to consider the cost of living where you would be located. If the cost of living is extremely high, you won’t be able to save nearly as much as you would if you lived elsewhere. You may be offered a position with a salary of $40,000 in Milwaukee or a position with a salary of $60,000 in Manhattan. Seems like going to Manhattan is a better option. However, the cost of living in Manhattan is significantly higher, and a $60,000 salary is equivalent to about $27,000 in Milwaukee. The cost of living will affect how much you can increase your net worth over time.
Cost of living is necessarily an estimate, not an exact science. Try one or several of the calculators below to compare cost of living in different cities.