Finance

A Breakdown of My Paycheck

Have you ever wondered how my paycheck breaks down every other week, allowing me to save a majority of my take home pay? If so, this post is for you.

I won’t argue that how much you’re paid is a big factor in determining how much you can save. But expenses are a crucial component as well.  Since my mortgage is paid off and I don’t have any loans or credit card debt, I need very little of my paycheck to cover my expenses each month.

Here’s a breakdown, in gross percentages:

  1. Taxes (23.6%)  Not much I can do about this one. Federal tax, state tax, Social Security, and Medicare all need to be paid.
  2. Deductions (5.3%) This would be my medical and dental premiums, as well as my HSA contribution, since my employer provides coverage. Pretty small since I have a high deductible health plan and pay for any care (outside of preventative) out of pocket. Thankfully, I’m relatively healthy.
  3. 401k (10%) I have to contribute 6% of my pay throughout the year to earn the 4% company match each payday. I currently contribute 10%. Why don’t I max it out? Read my reason why here.

39% of my paycheck is gone before it ever reaches my bank account. Here’s how I distribute the rest:

  1. Retirement Savings (35.4%) This includes my Roth IRA, taxable brokerage account, and a savings account I set up so I can accumulate a couple years worth of expenses in cash prior to retirement.
  2. Other Savings (7.1%) These accounts contain money that I plan to spend in the near future, such as Fun Money, Car Fund, and House Fund accounts. These aren’t meant to be long term savings, but instead a way to sort my cash for various goals/expenses.  Fun Money is for travel or unnecessary purchases. Car Fund is to help me save up enough to pay cash for my next vehicle. And my House Fund contains enough to cover the deductible as well as any surprise repairs that might need to be done (e.g. water heater, appliances, etc.).
  3. Living Expenses (18.6%) This is how much I need to pay my bills, buy groceries, etc. If I have money left over, I’ll transfer it to one of my short term savings accounts.

In total, I save 52.5% of my gross pay. If we’re looking at take-home pay (gross pay less taxes), I save 74.1% (which includes my HSA). Only 64.9% are towards my long term goals, though. If I can keep up this kind of savings rate, I should be able to meet my goal of early retirement in just over 10 years, as this doesn’t include any savings I’ve already accumulated. At the end of February, I was 37% of the way towards my early retirement financial goal.

How does your paycheck compare? Does the distribution align with your priorities?

5 thoughts on “A Breakdown of My Paycheck

  1. Nice! Thanks for sharing this breakout — it’s interesting to see. Our breakouts are pretty similar, except for higher taxes that take a lot more off the top. (Boo! But we’re okay paying our fair share, actually.) Last year, we didn’t max our 401(k)s for reasons similar to yours, but we decided to max them again this year just to help with the tax bill. But this close to retirement, and with our 401(k)s already well funded, we really need most of our money to go into our taxable accounts — so that’s where we put the bulk of our paychecks. 🙂
    Our Next Life recently posted…What’s Our Money Really For? // There’s More to Life Than Future GoalsMy Profile

  2. I’ve never looked at my savings from this perspective. I just ran the numbers and 48% of my paycheck disappears before I get paid. One bog problem, I live in California. The highest taxed state. The other expense is my portion medical coverage fees. This adds up with a family of 4. Thanks for sharing.
    Investment Hunting recently posted…Stock Buy – Wells Fargo BankMy Profile

  3. I’m glad I came across this today because I was JUST thinking of doing my own paycheck map with percentages. It’s interesting that your expenses only accounted for 20%, which is much less than what the experts recommend (50%). I live in a spendy city, and save over half, so I’ll come back here after I do my map to see how I compare!

    1. You should definitely do it! I found it fascinating to see the numbers in a different way.

      Having my house paid off makes it possible to keep my expenses low, as well as living in the suburbs in the Midwest. Can’t image what it would be like living in a high cost of living city.

      Let me know how your breakdown shakes out 🙂

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