Hey everyone! In today’s Whiteboard Wednesday we discuss how you can handle paychecks: Net or Gross.
I personally prefer the net method because it means there’s less work. One caveat: if you want to be able to prepare some type of tax report directly from YNAB, you may want to use the gross method. However, that same data that you’re providing can be found on your W2 at year-end…it sounds like a wash.
I have chosen to use gross because that way what I spend on taxes is right up front in the budget. And I do have some control over it — I can’t reduce it to zero, but I can change my W-4. Same with other withdrawals — I can keep paying for the cadillac health insurance, or I can grit my teeth and switch to Kaiser.
I get that some people need the simplicity of net income tracking, but I’m a recovering Quicken user and I’m used to having a space for every line item on the pay stub.
Jesse,
Thank you for another “Whiteboard Wednesday”.
I really like your discussion on the 2 ways of handling paychecks.
Prior to YNAB, I entered my gross pay but it was a lot of maintenance to make sure the information was correct. I never used this information for my budget.
I am in agreement with you on the net method. You stated in previous “Whiteboard Wednesday” to reduce the amount of categories. Your example of the car dashboard really hit home. I took you advice and I decided I wanted to simply my life not make my life more complex. I want see my budget at quick glance rather viewing data that does not impact my budget – like the information on the pay check they never changes in year except for pay increases. (Save the increase for Rule 3 – “Rainy Day Fund”)
I am extremely satisfied with my financial results I am seeing after I started using YNAB3.
Nice information; I use the net method as well. One thing which seems obvious, but might be useful for others is to explicitly walk thru using “net” and then tracking FSA’s as reimbursement in the medical (or whatever) category.
I must have OCD, because I use a separate account for all inflow, including gross paychecks. From there it gets disbursed into accounts that have a 1:1 correspondence with real accounts (e.g., checking, savings, 401(k), etc.). When it comes time to pay tithing (not an issue with everyone, I realize), I can look at the Inflow account and see the actual gross, including 401(k) matching, medical insurance kicked in by my employer, etc. (The Inflow account always has a balance of 0.)
Jesse, I’m going to have my husband watch this – we use the gross method, and he’s supposed to input his own paycheck, but has been having trouble ‘getting it’.
One thing I wanted to mention, though… I see where you’re coming from on the simplicity side of things, and that works well when the only things withheld from your checks are taxes and things like FSAs.
But… when you get paid weekly, you’ve got health & dental coming out twice a month, life insurance coming out once a month, fitness center dues coming out once a month, charity contributions weekly, child support weekly, union dues monthly…. well, some of those things belong on most people’s budget – we paid for that gym membership (which was not being used) for YEARS because we weren’t paying enough attention to the payroll deductions.
So there are valid reasons OTHER than being OCD to use a gross system.