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How to Calculate Your Income

Learn to calculate your income to determine your real cash flow.

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Part of the budgeting process is to calculate your income. Income is money you receive regardless of how it is given to you. It can be from wages, interest earned, dividends paid, capital gains from the sale of assets, income from rental units, cash for babysitting, and more.

There are different types of income and are treated differently by creditors, lenders, and government agencies. But for the purpose of this article, we want you to think about all the money that comes into your life. Understanding your income sources is one of the starting points towards creating a budget.

Start with an income source list

Create a list of all your income sources such as wages from work, interest income savings, dividend income from investments, capital gains from stock trading, rental income, side gigs, and more. Some of these income sources are paid weekly, biweekly, monthly, quarterly, and annually. Don’t include unexpected money such as rebates or tax refunds.

  1. Take a piece of paper and draw a line right in the middle
  2. Write down all income sources in one column
  3. Write the amount of income in the second column

Sitting down for a few minutes and thinking about all the sources of income is a good mental exercise. I also encourage you to look at your accounts to identify recurring income deposits you might have forgotten.

Your gross income represents your total income before any taxes or other deductions. Your net income, specifically your income minus taxes, credits, and deductions. Some common income sources include:

Wages, salaries, and tips: the money you earn at your job. When calculating your net income from wages and salaries, be sure to deduct any 401(k) contributions you choose to make.

Interest and dividends: earned from your bank accounts, such as savings accounts and certificates of deposit (CDs). Dividends may be received if you hold stock in a company.

Rental income: the total amount of money received for rent after expenses for the property has been paid.

Social Security: Social Security benefits include the amount paid to retirees who contributed during their working years, as well as amounts paid to survive spouses and disabled workers.

Miscellaneous income: may include unemployment compensation, winnings from gambling, gifts received, or money taken from an IRA, 401(k), or pension.

How to calculate your income (gross monthly)

For most, income from a job is the only source of income so calculating your gross monthly income is more straightforward.

Calculate with an annual salary

  1. Take your annual salary and divide by 12 (months). This equals your gross monthly income.

For example, if you’re salary is $50,000, then your gross monthly income is $4,166.67.

If you don’t know your annual salary, take a look at your paystub for gross income per paycheck. Then multiply the gross income by the number of times you get a paycheck in a year.

Calculate with an hourly job

This is a bit more complicated because the amount of hours work from week to week can change. To simplify the process, you can look at your annual tax returns. But for more accurate numbers, you’ll need to do a bit more calculations.

  1. To get your annual income, multiply your hourly wage by the number of hours you work each week. Then multiply the total by 52 (weeks).

For example, you are paid $10 per hour and work 40 hours per week, your gross weekly gross pay is $400. Multiplying that by 52 weeks (including a paid 2-week vacation), you’re annual gross pay is $20,800. You’ll then divide that by 12 (months) to get your gross monthly income which is $1,733.33.

If you’re hours vary week to week, estimate the average number of hours you work. If you get overtime hours, you’ll need to estimate your average number of overtime hours. Consider how many overtime hours you worked the previous year or this year so far to estimate “guaranteed” overtime.

Totaling all your income sources

If you have other sources of income, then you’ll want to add those to your calculations for a more accurate gross income amount. Income generated from other activities is typically pre-tax dollars which require you to pay the associated tax when you file your taxes. So you’re already working with gross income amounts.

  1. Take the list you started earlier and add the dollar amounts together to get your gross monthly income that includes all income sources.

Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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