Welcome to your financial journey! Let's start with something you'll encounter regularly throughout your career: your paycheck.
Your paycheck contains crucial information about your earnings, but it can look confusing at first glance.
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Have you ever looked closely at a paycheck before?
Every paycheck shows two key numbers: gross income and net income. Let's start with gross income.
Gross income is the total amount you earn before anything gets taken out. If your job pays $50,000 per year, that's your gross income.
Think of it as your "raw" earnings.
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Is gross income the amount before or after deductions?
Net income is different - it's what you actually take home after deductions. This is the money that hits your bank account.
Net income is always smaller than gross income because various amounts get subtracted first.
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Which number do you think matters more for your daily spending?
Here's a simple example: if your gross income is $4,000 per month but your net income is $3,200, you have $800 in deductions.
The $3,200 is what you can actually spend and save each month.
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Why do you think it's important to know both numbers?
So what creates the difference between gross and net? Deductions! These are amounts automatically removed from your gross pay.
Some deductions are required by law, while others are voluntary benefits you choose.
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Can you think of any deductions that might come out of paychecks?
Common deductions include income taxes, Social Security, Medicare, and health insurance premiums. Some people also have retirement contributions automatically deducted.
