Welcome back to the Net Worth Podcast.
Speaker 1: This week we are diving into how your first paycheck can become a powerful launch pad for lasting wealth.
Speaker 2: Check out the full edition on our website, wearenoyack.com.
Speaker 1: Okay, so that first paycheck hits your account.
Speaker 2: It’s a great moment, right?
Speaker 1: A real sign you’re moving forward.
Speaker 2: But then you look closely at the pay stub and maybe it’s a bit confusing.
Speaker 1: The number you earned versus the number you actually get.
Speaker 2: It often feels like quite a difference what’s happening there.
Speaker 1: So our mission today really is to demystify that first income stream because honestly understanding that stub is step one for optimizing your income and building net worth.
Speaker 2: So let’s unpack this.
Speaker 1: What’s really coming out of our paychecks before we even see it?
Speaker 2: You nailed it.
Speaker 1: That’s exactly where building financial control starts like we talk about in this edition of Noyack Wealth Weekly, understanding those withholdings.
Speaker 2: First up, the big one, federal income tax.
Speaker 1: Right.
Speaker 2: Everyone deals with that.
Speaker 1: Exactly.
Speaker 2: And the amount isn’t just random.
Speaker 1: It comes from your W-4 form.
Speaker 2: Getting that form right is actually super important.
Speaker 1: So it’s not just like a fixed amount.
Speaker 2: You can adjust it.
Speaker 1: Precisely.
Speaker 2: If you withhold too much, you’re basically giving Uncle Sam an interest-free loan all year.
Speaker 1: Money that could be working for you.
Speaker 2: But if you withhold too little, well, you could get hit with a surprise tax bill in April, maybe even penalties.
Speaker 1: We strongly suggest, in this edition, using the IRS withholding calculator, It’s free online, helps you fine tune things so you’re not over or underpaying.
Speaker 2: Gives you more control over your cash right away.
Speaker 1: It makes a lot of sense.
Speaker 2: Nobody wants to give away free loans, So when that cash could be earning interest or something.
Speaker 1: OK, so beyond federal tax, what else?
Speaker 2: Like FICA, what’s that about?
Speaker 1: FICA, yeah, that’s next.
Speaker 2: These are more straightforward fixed percentages.
Speaker 1: It covers Social Security, that’s 6.2%.
Speaker 2: And Medicare, which is 1.45 % of your gross pay.
Speaker 1: These are really essential.
Speaker 2: They fund your future benefits, retirement, disability, healthcare later on.
Speaker 1: And an interesting detail, something this edition points out, especially for higher earners, Medicare tax doesn’t have an income cap, but Social Security does.
Speaker 2: For 2024, I think it’s $168,600.
Speaker 1: Once you earn more than that in a year, you stop paying the Social Security part.
Speaker 2: Okay, that’s a detail I bet a lot of people miss.
Speaker 1: Definitely changes things for higher incomes.
Speaker 2: And then…
Speaker 1: State and local taxes.
Speaker 2: I guess those most vary wildly depending on where you live.
Speaker 1: Oh, absolutely.
Speaker 2: Huge variations.
Speaker 1: If you’re lucky enough to live somewhere like Texas or Florida, no state income tax means you just take home more, period.
Speaker 2: For folks in higher tax states, though, this addition suggests ways to offset that, like really maximizing pre-tax benefits.
Speaker 1: Think HSAs, health savings accounts, or your 401K contributions.
Speaker 2: Those lower your taxable income, which helps cut down your state and local tax bill, too.
Speaker 1: Good reminder.
Speaker 2: Tax planning isn’t just for millionaires.
Speaker 1: It starts right there.
Speaker 2: What about other things?
Speaker 1: Beyond the mandatory taxes, what deductions might show up?
Speaker 2: Yeah, there are usually others.
Speaker 1: Health insurance premiums are a big one.
Speaker 2: If you get coverage through work, that usually comes out pre-tax.
Speaker 1: Maybe life insurance premiums, too.
Speaker 2: And definitely retirement contributions, like into a company 401k or maybe even direct deposits you set up for an IRA.
Speaker 1: Understanding all these deductions, it’s not just about tracking money.
Speaker 2: It’s about making conscious choices.
Speaker 1: This edition really emphasizes that understanding is the uh very first step towards smart money management.
Speaker 2: Building confidence.
Speaker 1: It’s all about getting that control and visibility.
Speaker 2: That’s so true.
Speaker 1: Clarity really does build confidence.
Speaker 2: Once you know exactly where the money is going, it feels less like a mystery, more like a system you manage.
Speaker 1: OK, so let’s shift gears a bit.
Speaker 2: Moving from just understanding deductions to actively using your paycheck strategically.
Speaker 1: It’s not just about what’s taken out, right?
Speaker 2: It’s about leveraging it to build the future you want.
Speaker 1: And this is where it gets really good.
Speaker 2: Those like hidden opportunities that are almost like free money.
Speaker 1: Exactly.
Speaker 2: You’ve hit the core of what this edition calls out as a prime way to accelerate your net worth.
Speaker 1: And top of that list, absolutely, is maximizing your employer’s 401k mass.
Speaker 2: To match.
Speaker 1: Yeah.
Speaker 2: I mean, it’s often the closest thing to actual free money you’ll find.
Speaker 1: Many employers match your contributions, maybe 50 cents on the dollar, up to a certain percentage of your salary.
Speaker 2: If you don’t put in enough to get that full match, you are literally leaving money behind.
Speaker 1: It’s like saying no to a bonus.
Speaker 2: And it’s wild how many people actually do that.
Speaker 1: I remember seeing that stat from NOYAC’s Millennial Money Wealth Survey, which this edition mentions, something like nearly 40 % of workers aren’t contributing to employer savings programs.
Speaker 2: That seems huge, almost half missing out on that instant return.
Speaker 1: Why do you think that happens?
Speaker 2: That’s a great question.
Speaker 1: This edition touches on it.
Speaker 2: Sometimes it’s feeling like you can’t afford it, right?
Speaker 1: Money feels tight already.
Speaker 2: Other times, maybe it’s just not fully understanding how significant that match really is over the long haul.
Speaker 1: Or underestimating compounding.
Speaker 2: Think about it.
Speaker 1: If they match 50 % up to 6 % of your pay, that’s an immediate guaranteed 50 % return on your investment.
Speaker 2: Before the market even does anything, over decades, that free money base grows into a serious chunk of your retirement savings.
Speaker 1: Wow.
Speaker 2: A 50 % instant return.
Speaker 1: Yeah.
Speaker 2: Hard to beat that.
Speaker 1: What else?
Speaker 2: Are there other benefits?
Speaker 1: Maybe less obvious ones we should look Definitely.
Speaker 2: Tax-advantaged accounts like HSA’s health savings accounts and FSA’s flexible spending accounts.
Speaker 1: This edition highlights these as fantastic tools for health care or even dependent care costs because you pay with pre-tax dollars.
Speaker 2: With an HSA, contributions are deductible, growth is tax-free, and withdrawals for qualified medical stuff are tax-free.
Speaker 1: The triple tax advantage, they call it.
Speaker 2: FSAs save you on taxes too, but they often have that use it or lose it rule each year.
Speaker 1: Using these accounts cuts your taxable income now, helps you plan for future costs and boosts your effective savings, which of course helps your net worth.
Speaker 2: OK, so it’s a smart way to handle necessary costs and lower your taxes at the same time.
Speaker 1: Anything else on the employer front?
Speaker 2: One more to look out for, employee stock purchase plans or ESPPs.
Speaker 1: If your company offers one, this edition says definitely check it out.
Speaker 2: These plans often let you buy company stock at a discount, maybe 10 or 15 percent below the market price.
Speaker 1: And some have a really cool feature called a look back provision.
Speaker 2: A look back.
Speaker 1: What’s that?
Speaker 2: It means you get the discount based on the stock price either when the offering period started or when it ends, whichever is lower.
Speaker 1: So if the stock price went up, you still get the discount on the lower starting price.
Speaker 2: It can be a really nice bonus.
Speaker 1: Ah, that’s a pretty sweet deal.
Speaker 2: Protects you a bit if it dips, gives you extra upside if it climbs.
Speaker 1: Any catches with ESPPs?
Speaker 2: Well, not catches exactly, but this edition does note some tax complexities like how long you hold the stock before selling impacts how the gains are taxed.
Speaker 1: qualifying versus disqualifying sales.
Speaker 2: So you need to understand those rules to really maximize it.
Speaker 1: basically, yeah, all these benefits, the 401k match, HSAs, FSAs, ESPPs, if you use them fully, they give you an instant boost and seriously supercharge your savings and net worth building.
Speaker 2: That’s powerful.
Speaker 1: It really drives home not just what you earn, but how smart you are about using everything offered to you.
Speaker 2: OK, so once you’ve tackled those employer benefits, what about the day-to-day stuff?
Speaker 1: What universal habits does this edition recommend?
Speaker 2: to really build that strong financial foundation.
Speaker 1: Right.
Speaker 2: Now we get to those core habits.
Speaker 1: Super critical for the long run.
Speaker 2: And a big one highlighted in this edition is mastering your budget.
Speaker 1: We often talk about the 50-30-20 rule.
Speaker 2: It’s a simple framework.
Speaker 1: 50-30-20.
Speaker 2: Remind me how that breaks down.
Speaker 1: Sure.
Speaker 2: Roughly 50 % of your take-home pay for needs housing, food, utilities, essential stuff.
Speaker 1: Then 30 % for once dining out, hobbies, entertainment.
Speaker 2: And the last 20 % is key.
Speaker 1: That goes towards paying down debt and saving or investing.
Speaker 2: I like that rule.
Speaker 1: It gives structure, but doesn’t feel like you have to track every single penny.
Speaker 2: It feels manageable.
Speaker 1: But is it flexible?
Speaker 2: Like, what if someone has, say, a ton of student loan debt?
Speaker 1: Excellent point.
Speaker 2: And yeah, this addition stresses flexibility.
Speaker 1: It’s a guideline, not a strict law.
Speaker 2: If you have high interest debt, you might absolutely need to shift that 20%.
Speaker 1: Maybe it’s almost all going to debt for a while.
Speaker 2: You might even need to trim the wants category temporarily.
Speaker 1: The main goal is a realistic budget you can stick to.
Speaker 2: One that aligns with where you are now and helps you consistently move toward your goals, building assets step by step.
Speaker 1: That makes total sense.
Speaker 2: Adapt the framework.
Speaker 1: OK, what’s another key piece for stability?
Speaker 2: The other huge one, building and keeping a solid emergency fund.
Speaker 1: This edition recommends saving three to six months worth of your essential living expenses.
Speaker 2: And super important, keep it separate, like in a high yield savings account.
Speaker 1: Easy to access, but not too easy.
Speaker 2: You know, not mixed with your daily spending money.
Speaker 1: Why is that emergency fund so critical for net worth specifically?
Speaker 2: It feels like more than just rainy day money.
Speaker 1: Oh, it absolutely is.
Speaker 2: Think of it as a shield for your net worth.
Speaker 1: Something unexpected happens.
Speaker 2: Big car repair, medical bill, maybe you your job for a bit.
Speaker 1: Without that fund, what do you do?
Speaker 2: You might have to sell investments at a bad time, pay taxes, miss out on growth, or worse, rack up high interest credit card debt.
Speaker 1: The emergency fund stops that.
Speaker 2: It preserves your assets, lets your investments keep growing, keeps your net worth from taking unnecessary hits.
Speaker 1: It protects your progress.
Speaker 2: Okay, so yeah, not just rules.
Speaker 1: They’re really strategic moves for stability and progress.
Speaker 2: A shield and a foundation.
Speaker 1: All right, let’s zoom out a bit now, thinking longer term.
Speaker 2: Beyond the immediate paycheck and budget, how do we make our money really work for us over decades?
Speaker 1: Yeah, this is about that long-term vision, which this edition really reinforces.
Speaker 2: One powerful concept comes from people like Robert Kiyosaki.
Speaker 1: Pay yourself first.
Speaker 2: Pay yourself first.
Speaker 1: What does that mean in practice?
Speaker 2: It means as soon as your paycheck lands, the first thing you do is move money into your savings or investment accounts before you pay bills, before discretionary spending.
Speaker 1: It’s a mindset shift, really.
Speaker 2: You’re prioritizing your future self automatically.
Speaker 1: Make saving non-negotiable.
Speaker 2: That feels psychologically powerful.
Speaker 1: Clipping the script from save what’s left to save first.
Speaker 2: Exactly.
Speaker 1: And that leads right into the power of investing early and consistently.
Speaker 2: As this edition details, quoting sources like Investopedia, most significant wealth isn’t just from paycheck stacking up, it’s from investment growth.
Speaker 1: Compounding.
Speaker 2: That’s where your money starts making more money.
Speaker 1: So consistently putting money into things like Roth IRAs, 401ks, even small amounts, if started early, can grow massively over time thanks to compounding.
Speaker 2: Time is your biggest ally there.
Speaker 1: So it’s less about just earning more and more about making what you do earn.
Speaker 2: work harder for you.
Speaker 1: Yeah.
Speaker 2: Making money, make money.
Speaker 1: Precisely.
Speaker 2: This edition really hammers home prioritizing those future goals.
Speaker 1: Invest first, max out that match, contribute to retirement, explore the benefits, then figure out the rest.
Speaker 2: And alongside investing, there’s another crucial piece for stability and growth, debt elimination.
Speaker 1: Interesting that debt elimination comes up right next to investing.
Speaker 2: Why is tackling debt, especially the high interest kind, so vital for net worth?
Speaker 1: It’s a really critical point in this edition.
Speaker 2: Think about high interest debt credit cards, maybe some personal loans.
Speaker 1: It’s like a leak in your financial boat, a wealth train.
Speaker 2: If you’re paying, say, 20 % interest on a credit card, that’s a guaranteed negative 20 % return.
Speaker 1: Every dollar going to that interest is a dollar that can’t grow for you.
Speaker 2: Getting rid of that debt, it’s like earning a risk-free return equal to that high interest rate.
Speaker 1: Instantly frees up cash flow.
Speaker 2: Once it’s gone, all that money can go towards building assets instead of servicing debt.
Speaker 1: It solidifies your foundation so growth can really take off.
Speaker 2: OK, it really clicks now.
Speaker 1: All these actions together, understanding, budgeting, saving, investing, tackling debt, they build that control and visibility you mentioned earlier.
Speaker 2: It’s not just about managing money day to day.
Speaker 1: It’s about actively strategically cultivating wealth over the long term.
Speaker 2: Exactly.
Speaker 1: And if you connect all these dots, that first paycheck, it’s way more than just money.
Speaker 2: It’s a strategic tool, a starting line for building real lasting wealth.
Speaker 1: Which leads to an important question for you, the listener, to think about.
Speaker 2: How might automating these steps change things for you?
Speaker 1: Setting up those direct deposits to savings, scheduling the 401k contribution, maybe automating extra debt payments.
Speaker 2: If you automated this optimization, how different could your financial picture look in five, 10, even 20 years?
Speaker 1: Making wealth building almost effortless.
Speaker 2: Wow.
Speaker 1: That’s a really powerful thought to end on.
Speaker 2: Automating success.
Speaker 1: So the takeaway seems clear.
Speaker 2: Understand where your money goes.
Speaker 1: Grab that free employer money, set up a smart budget, build that safety net, invest early and often, and crush high interest debt.
Speaker 2: Those are the blocks for building lasting net worth.
Speaker 1: Remember to subscribe to Noyack Wealth Weekly on our website wearenoyack.com.
Speaker 2: To read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
