What is Your Take-Home Income

Want to know about your personal finance? If so, you need to understand your income more. What you have to know is how much you make per month, what your expenses are, what your savings are, and so on. If you make a budget, you can even predict your income at some small level.
So, let’s get down to it!

Gross Income and Net Income

People still confuse between these two things, so let’s tackle these two essential terms. Gross income is the money you make before money is deducted from it by way of taxes, deductions, and personal contributions. Net income is one which you take home after all of that. Net income is therefore called Take Home Income. Net income is the one that actually gets credited into your bank account.

We understand that some people get paid by the hour or by per project done. For the purposes of this article, we are going to focus on salaried individuals only. For those operating as independent contractors, income is a bit different.

It is not hard to find out what your gross income is. If you are a salaried person, your gross income shall be the total number of hours you have worked in a week multiplied by your specific hourly rate. This is the income for hourly wage earners.

However, things are different if you are a salaried person. Your gross income is found out by dividing your income per annum by 12. This shows your monthly gross income.

Now comes a very important part: what happens between your gross income and net income? Where does that money go?

The answer in short: taxes and deductions.

Taxes

Taxes, also called withholding, are the funds you owe annually. These are deducted from your monthly paychecks regularly. This is just as well because you do not want to pay a huge lump sum tax at the end of the year. 

Taxes are of various types. There can be central government taxes, state taxes, municipal taxes, and so much more. Taxes are also on Medicare, Provident Fund contributions, and such others. 

What if you are an independent contractor?

 Some workers do not fall under the term “employee.” They are called independent contractors. Freelancers fall under this category, as well as self-employed people. Such people are responsible for paying their own taxes, and can’t rely on any company to match their contributions. For such people it is important not to spend too much money before paying taxes.

On to budgeting

Now that you know the difference between gross income, net income, and what happens in between them, you can now budget for your personal finance.