Skip to content
Spark & Whetstonethe grown-up commons

← A Year on Paper

A Year on Paper

Three short lessons on a first year of earning, for a young adult or the grown-up helping them: the pay you actually take home, a cushion for surprises, and what interest does in both directions.

Spark & Whetstone · sparkwhetstone.org/learn/a-year-on-paper · CC BY-NC-SA 4.0. Answers are at the end, so you can try each question first.

Lesson 1. The pay you take home

A job offer usually states gross pay: the amount before anything is taken out. What arrives in your account is net pay, after taxes and any deductions such as a pension or health plan.

Plan with the net figure. A budget built on gross pay runs out before the month does.

Question. Which figure should a first budget be built on?

  1. Gross pay, before deductions.
  2. Net pay, after deductions.
  3. The highest month's pay.

Say it back. In your own words: what is the difference between gross and net pay?

________________________________________________

________________________________________________

Lesson 2. A cushion for surprises

Surprises are certain even if their timing is not: a broken phone, a car repair, a gap between jobs. A small savings cushion, set aside before other spending, turns a surprise into an inconvenience.

A common rule of thumb is to work towards a few months of essential costs over time. Start much smaller: even a few hundred dollars covers many surprises.

Question. When is the best time to move money into a cushion?

  1. After all other spending, if anything is left.
  2. As soon as pay arrives, before other spending.
  3. Only when something goes wrong.

Say it back. Say it back: why build a cushion before you need it?

________________________________________________

________________________________________________

Lesson 3. Interest, both ways

Interest works for you on savings and against you on debt. $1,000 saved at 5% a year becomes $1,050 after one year, and $1,102.50 after two, because the second year earns interest on the first year's interest.

On a credit card at 24% a year, an unpaid $1,000 costs about $240 in the first year alone. The same arithmetic, pointing the other way.

Question. $1,000 saved at 5% a year, with the interest left in. How much after two years?

  1. $1,100.00
  2. $1,102.50
  3. $1,050.00

Say it back. In your own words: how does interest work for you and against you?

________________________________________________

________________________________________________

At the table: A month on paper

Players: a young adult and a grown-up. You'll need: paper, a pencil and a calculator.

  1. Write a pretend monthly net pay at the top.
  2. Take out the cushion first, then list essentials: rent, food, travel, phone.
  3. Whatever is left is for choosing. Decide together how to use it.
  4. Add one surprise ($200) and see whether the cushion covers it.

Answers

  1. Net pay, after deductions. — Net pay is what you can spend, so the budget starts there.
  2. As soon as pay arrives, before other spending. — Moving it as soon as pay arrives means it actually gets saved.
  3. $1,102.50 — Year one: $1,050. Year two: 5% of $1,050 is $52.50, making $1,102.50.