Net income personal fimcmace

Employee

A person who works for another person or organization in return for pay.

Income

Any money earned or received.

Gross Pay

The amount an employee earns before taxes or deductions are subtracted.

Earnings Statement

A document that shows an employee's wages and the deductions withheld.

Withholding

The amount an employer removes from an employee's gross earnings during each pay period.

W-4 Form

An IRS tax form that tells an employer how much federal income tax to withhold from an employee's paycheck.

Net Pay

The amount of money an employee receives after taxes and other deductions are removed; also called take-home pay.

Net Monthly Income (NMI)

A person's net pay on a monthly basis.

Deductions

Amounts subtracted from gross pay.

Mandatory Deductions

Deductions required by law, such as federal income tax, state/local income tax, Social Security tax, and Medicare tax.

Voluntary Deductions

Optional deductions chosen by the employee, such as health insurance, retirement savings, and flexible spending accounts.

Federal Income Tax

A mandatory tax withheld from an employee's paycheck for federal taxes.

State/Local Income Tax

A mandatory tax that may be withheld for state or local government.

Social Security Tax

A mandatory payroll tax withheld from an employee's paycheck.

Medicare Tax

A mandatory payroll tax used to fund Medicare.

Health Insurance Premium

A voluntary deduction used to pay for health insurance.

401(k) Contribution

A voluntary deduction that puts money into a retirement savings account.

Total Income

The sum of all income earned during a pay period.

Total Deductions

The sum of all taxes, benefits, and other deductions taken from a paycheck.

Total Net Pay

The total income for a pay period minus total deductions.

Net Pay Formula

Total Income − Total Deductions = Total Net Pay.

Net Monthly Income Formula

Total Net Pay × Number of Paychecks Per Year ÷ 12.

Why Complete a W-4?

To tell the payroll department how much income tax to withhold from each paycheck.

What happens if deductions are forgotten?

Your earnings may not cover as many expenses as expected because your take-home pay is lower than your gross pay.

Bank

A private business that offers financial services to make a profit. Banks offer checking and savings accounts, loans, and credit cards.

Savings & Loan

A private financial institution that offers interest on savings and lends money, usually for home mortgage loans. They rarely have checking accounts.

Credit Union

A financial institution owned and controlled by its members and a board of directors. Profits are reinvested to benefit members.

Internet Bank

A bank that lacks a physical location and exists only on the internet.

Traditional Savings Account

A basic savings account offered by brick-and-mortar banks, savings & loans, or credit unions. It has low minimum balances, easy access, and low fees but pays a low interest rate.

High-Yield Savings Account

A savings account at a bank or online that pays a much higher annual interest rate than a traditional savings account.

Certificate of Deposit (CD)

A fixed-term account where you lock away your money for a set period in exchange for a guaranteed, often high interest rate. Early withdrawal triggers a penalty.

Money Market Account

An account that combines savings features with limited check-writing or debit card capabilities. It often requires a higher minimum balance.

Investment

Using money to purchase assets such as stocks or retirement accounts with the goal of growing your money over time.

IRA

An individual retirement account used to save and invest money for retirement.

401(k)

A retirement savings and investment account that allows money to be invested for future retirement.

Direct Purchasing of Stock

Buying stocks directly as an investment. The value and return can depend on the stock market.

Rule of 72

A quick formula used to estimate how many years it will take an investment to double at a fixed annual interest rate.

Rule of 72 Formula

Years to Double = 72 ÷ Annual Interest Rate.

Rule of 72 Example

If the annual interest rate is 3%, divide 72 by 3. The investment would take about 24 years to double.

Traditional Savings Interest

Traditional savings accounts typically pay very low interest rates, such as 1% APY according to the class notes.

CD Interest

CDs in the class notes are listed as usually earning about 3%–5% APY.

Money Market Interest

Money market accounts in the class notes are listed as usually earning about 4%–7% APY.

What happens if you withdraw money from a CD early?

You usually have to pay a penalty for withdrawing money before the CD's fixed term ends.

What is the main purpose of a savings account?

To set money aside for future use.

Which bank has no physical location?

An Internet Bank.

Which financial institution is owned by its members?

A Credit Union.

Which account usually requires locking money away for a fixed period?

A Certificate of Deposit (CD).

Which savings account usually pays a higher interest rate?

A High-Yield Savings Account.

Which account combines savings features with limited check-writing or debit card capabilities?

A Money Market Account.

What does APY mean?

Annual Percentage Yield.

Why are investments used?

To potentially earn a high rate of return and grow money over time.

How do you calculate years to double using the Rule of 72?

Divide 72 by the annual interest rate.

If the annual interest rate is 3%, how many years will it take to double?

24 years.

If the annual interest rate is 6%, how many years will it take to double?

12 years.

If the annual interest rate is 8%, how many years will it take to double?

9 years.

If the annual interest rate is 12%, how many years will it take to double?

6 years.