Many parts of your financial life depend on knowing your monthly income. You may know how much you receive for your paycheck and the amount you earn, but do you know how to calculate income every month?
You’ll need to know different monthly income numbers for various purposes. Read on to learn the different ways to calculate your monthly income.
Gross vs. Net Monthly Income
You may have heard the terms gross monthly income and net monthly income. But what is the difference?
Gross monthly income reflects your total earnings. This would be either your full salary or your total hourly wage before any deductions are taken out. Net Monthly Income is the amount that you receive on your paycheck, also sometimes known as “take-home pay.”
How to Calculate Gross Income
Most employers do not pay only once per month. They will either pay every two weeks (known as bi-weekly) or two times per month (known as twice-monthly). Some employers may also pay weekly.
If you are a salaried employee, you will take your total annual salary and divide it by 12 to calculate your gross monthly income. For example, if your salary is $60,000, your gross monthly income is $5,000 ($60,000 / 12).
If you are paid weekly or bi-weekly, you’ll need to do some additional calculations. You will take your wage and multiply it by the number of hours you work per week. You’ll then take that weekly amount and multiply by 52 for 52 weeks per year, and then divide by 12 for 12 months.
For example, if you earn $20 per hour and work 40 hours per week, your weekly gross income is $800. Your annual income would be $41,600 ($800 x 52) and your gross monthly income would be $3,466.67 ($41,600 / 12).
Deductions From Your Gross Income
The amount that you earn as gross monthly income is not what you will see on your paycheck. Your employer will need to withhold amounts from your gross income, such as:
- Social Security and Medicare Taxes
- 401(k) contributions
- Insurance premiums
- Flexible Spending Account contributions
- Health Savings Account contributions
If your employer uses an amazing paycheck stub maker, you will be able to see an itemization of all of the deductions from your gross income.
How to Calculate Net Income
If you need to know your net monthly income, you will calculate it based on the amount of your paycheck. If you are salary and paid twice monthly, you will take the amount of each paycheck and multiply it by two to arrive at your net monthly income.
If you are paid weekly, you will take your paycheck and multiply by 52 to get the annual net amount, then divide by 12 to arrive at a monthly net amount. If you are bi-weekly, you will take your paycheck, multiply by 26 (the number of pay periods per year), and divide by 12.
Know How to Calculate Income for Different Reasons
When you apply for a loan or fill out a rental application, you will usually need to fill out your gross monthly income. When you are trying to budget how much money you have to spend, you will use net. If you know how to calculate income, you can also re-calculate for changes in your income.
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