There are two very important reasons to know your income. First, you need to know how much you earn in order to know how much you can afford to spend and save. Knowing your income will help you create a budget that allows you to pay for living expenses, such as food and rent, as well as set aside money for entertainment, special purchases, or emergencies. You can find out more about creating a household budget later in this course.
A second important reason to know your income is to understand your taxes. People who live and work in the United States are usually required to pay federal taxes (taxes that apply to everyone in the United States) and state taxes (taxes decided upon by the state in which you live.) The amount of taxes you pay is based on your yearly income and expenses.