So, you’ve gotten the offer for a job – congratulations! Along with the work itself and the benefits that the office offers, the salary is also one of the largest considerations about whether or not it’s the right job for you. But how do you know if the salary is enough? You have to figure out the difference between your gross and net salaries.
What’s your gross salary? A gross salary is the total amount that you take home every year (this can include the costs of all benefits), pre-tax. Divide it by 12 and you’ll get the amount that you take home every month. That number looks gorgeous, doesn’t it? Sadly, it’s not what you actually get in your bank account every payday.
What you get in your bank account is your net salary – the amount you’re paid after all taxes are taken out and you have paid for all of the benefits your company offers. (This includes health insurance, retirement accounts, and any other optional benefits that you may have signed up for. These may be technically optional, but really, they’re not.) Subtract that rather large number from your gross salary, divide by 12, and you have your net salary: what you actually make every month.
Sometimes, that number can take the wind right out of your sails.
We’re going to calculate the typical salary for an editorial assistant at a publishing company in New York City – somewhere between $25,000 and $34,000 per year. This hypothetical worker (we’ll call her Mara) will be paid $28,000 per year.
Figuring out Mara’s net salary isn’t the easiest thing (and this assumes that she’ll be paid twice a month; sometimes, she’ll be paid three times a month, due to the calendar):
Mara’s gross salary: $2333.33 per month (28000/12).
Her gross salary every two weeks: 1166.66 per paycheck (2333.33/2).
Her net salary? 1447.04 per month.
That works out to 723.52 per paycheck.
We get that number from taking out the following standard deductions from each paycheck:
Federal Taxes: $145.19
You’re taxed on 10% of the first $8500 you earn ( $850).
You’re then taxed on 15% of what you earn up to $34,500, so:
New York State and New York City taxes (8.875%): $95.58
FICA (Social Security & Medicare taxes – 7.65%): $82.38
Health Insurance: $50.00
(This will go up as you age or if you have a family.)
Retirement Account (6%): $69.99
(FYI: Financial planners recommend 10% per paycheck.)
So, what can our editorial assistant afford?
Let’s say $1000 per month for a 1BR is the average rent in New York City. (That’s probably not going to be in Manhattan.) Your rent should only take up 33% of your paycheck, but it will be taking up slightly less than 70% of her monthly pay, and that’s even before she, you know, eats.
She’ll need to get roommates and be very budget-conscious, as food takes up around 15% of a paycheck. She’ll want to save something for the future, so 10% of the remainder should go to straight into her savings account, never to be touched. If she took out a student loan to go to New College, she’ll need to pay at least 5% of her take-home pay into that, per government rules.
It’s going to be a tough year for our Mara.
Why do you need to know the difference between your own gross and net salary?
You must know the difference between your gross and net salaries – it makes you better prepared for the future, whatever you decide it’s going to be. Whether or not Mara wants to make the sacrifices that her salary requires her to make is her decision. But knowing what her net salary would be makes it a decision that she is fully prepared for.
Are you? It’s time to do your calculations.