How to calculate gross income per month

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Gross income simply refers to your total compensation before taxes or other deductions. If you think of yourself as a business, your gross income is your primary sales figure.

This can be useful to know for a variety of reasons. For example, if you take out a loan, you will have to pay it monthly. The approval of the loan usually depends on your gross income exceeding a certain amount. Your gross income will also help you budget and determine how much you will have available to save for retirement.

It’s also a much simpler measure than your net income, which requires you to factor in taxes and other deductions.

Some of the common deductions, separate from taxes, include:

  • Health insurance premiums
  • Pension contributions
  • Benefits for commuters
  • Flexible contributions to the expense account
  • Certain types of insurance (for example, life, disability, supplementary)

Remember, gross income is your earnings before taxes and deductions, and your net income is the money you receive after taxes and deductions.

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What to include in gross income

Gross income is the sum of all the money earned during a given period. This includes salary, bonuses, commissions, ancillary income and freelance income, or any other type of income. Depending on the context, this may also extend to income from dividend payments, interest and capital gains.

The only thing you won’t have to do in calculating your gross income is to factor in taxes. Gross income is purely a pre-tax amount, so taxes will not be relevant for the calculation.

The importance of knowing your gross monthly income

If you’re applying for a home or car loan, or trying to budget, it’s important – and necessary – to know how much is coming home to you each month. Most lenders will need to know how much you earn to determine if you will be a reliable borrower.

Knowing your gross monthly income can also help you decide how much to save for retirement. If you’re trying to figure out how much to put into your retirement account each month, knowing where you stand in terms of gross income will help you make that decision.

Your net income is also of great importance. One way to think of net income is to think of it as the “disposable” money that flows into your checking or savings account each month. Net income is also useful in building a monthly budget since your regular after-tax expenses, both fixed and discretionary, will come from your net income.

Unfortunately, when you are offered a salary of $ 75,000, you do not receive that amount in usable cash. A significant portion of the money is spent on taxes and fixed deductions, so knowing your net income will help you develop a more stable budget and keep you on top of your finances.

Calculation of gross monthly income if you have an annual salary

If you receive an annual salary, the math is pretty straightforward. Again, gross income refers to the total amount you earn before taxes and other deductions, which is how an annual salary is usually expressed. Just take the total amount of money (salary) you get paid for the year and divide it by 12.

For example, if you receive an annual salary of $ 75,000 per year, the formula indicates that your gross income per month is $ 6,250.

Many people get paid twice a month, so knowing your bi-weekly gross income is also helpful. To find this amount, just divide your gross income per month by 2.

Continuing with the example above, you would divide $ 6,250 by 2 to arrive at $ 3,125 as gross income every two weeks.

Calculating gross monthly income if you get paid by the hour

For hourly employees, the calculation is a bit more complicated. First, to find your annual salary, multiply your hourly salary by the number of hours you work each week and then multiply the total by 52. ​​Now that you know your annual gross income, divide it by 12 to find the monthly amount.

Note: If your hours vary from week to week, use your best estimate of the average number of hours you work.

For example, if you are paid $ 15 an hour and work 40 hours per week, your gross weekly pay is $ 600. Multiplying this amount by 52 gives you an annual gross income of $ 31,200. Finally, dividing by 12 yields a gross income of $ 2,600 per month.

If you have special circumstances, like a certain amount of overtime per month or a recurring bonus or commission, you can usually add it to your gross monthly income.

The common way to do this is to figure out the amount of overtime (or bonuses or commissions) you received in the past year and divide it by 12. This amount would then be added to the gross monthly income you have. calculated from your base. Pay.


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