When figuring out your income and setting a budget, it is important to remember that you may never see all of the money that you earn. This is because a portion of your income goes to taxes and is usually taken directly from your paycheck. (You can find out more about what you should be paying in taxes and where your taxes are going later in this section. - How come my paycheck may be less than what I am earning?)
Therefore, there are two types of income. Gross income is the total amount of money you earn. For example someone who earns $10 an hour and works full-time for a year has a gross income of $20,800 ($10 an hour x 40 hours a week x 52 weeks.) However that person may only receive $14,965 over the course of the year, as taxes will be taken out of each paycheck ($400 a week - $112.20 a week in taxes = $287.80 a week x 52 weeks = $14,965.60).
The amount a person receives after taxes is called their net income. When creating a budget, you want to use your net income (the actual amount of money you have available) rather than your gross income.
Here are some easy ways to estimate (come up with an educated guess) how much your monthly or yearly income will be. Note: Because the number of workdays in a month varies, you may not be able to figure out the exact amount of your monthly or yearly income, but you should be able to figure out a close estimate.
If you are already receiving a paycheck, and it is
If you are offered a job and want to be sure that you will be earning enough to pay your expenses, be sure to ask your employer what your hourly, monthly, or yearly pay would be. If possible, ask them or a trusted financial advisor to help you figure out how much you would earn after taxes.
In addition to your income from job(s), you should also remember to add in any money (like dividends or interest) you earn from savings accounts, CDs, stocks, or bonds. You can learn more about savings and investments later in this course. Making the Most of Your Money