3 Things You Don’t Know About Your Income (But Should)
Money might not be so easy to earn, but it is easy to calculate. What comes in is your “income” (duh). But, as you’ve probably noticed from your pay stubs, the money you bring home isn’t the actual salary you signed up for. So here are three things to know NOW about how much money you’re actually making:
- The difference between “gross” and “net.” Not all income is created equal. Gross income is the whole shebang, before Uncle Sam takes out a bunch of taxes. After that, it’s called net income, or whatever you actually take in. (BTW, a synonym for net income is “earned income.”)
- Yes, there are other types of income besides your salary. Income doesn’t have to come only from your paycheck. You might have investment income, which is money that comes in from stocks and bonds and investments like that. Maybe you have what’s called “other income,” like regular cash gifts (from your parents, say), or things like alimony and child support. Include those, too, but only if it’s ongoing, not a one-time thing. Onetime income is called “nonrecurring income” or “windfalls.” That just means that it is a one-time gift , bonus, or any other kind of money that you can’t necessarily depend on receiving again.
- Add these together and what do you get? You should have the number that represents all your income right now. Of course, it may change in six months or a year as you get raises, get promotions, change jobs or make extra money on the side. Your Spending Plan will shift around a little, too. And that’s okay. You’re gonna revisit your income often. And that can truly be a good, a great, thing.
If you make money in an unpredictable way—maybe you’re a real estate broker or a freelancer who doesn’t know when her next deal will close, or for how much—try to come up with an average, preferably based on what you’ve earned over a multi-year period. If you’re just starting out and can’t do that, make your best guess, but be conservative. After all, earning more money than planned is a high-class problem, not to mention a much easier budget issue than having less.