How to Calculate My Monthly Income
Types of Income
- There are various types of income, and they can be roughly divided into two major categories: earned income and investment income. Investment income includes interest, dividends, capital gains and rental income, among other sources. Earned income is the type of income most workers first think of when the word "income" is mentioned. This is strictly income from some sort of effort, whether it is mental or physical labor.
Variable vs. Fixed Income
- The easiest type of income to tally would be a salaried income, where the employee makes a fixed salary no matter how many hours she works. In this situation, the gross income would be the same every month. Estimating future income for individuals whose income fluctuates due to hours worked or commissions generated is more difficult. Of course, previous earnings can be tallied up, but in this case, future earnings can only be estimated based on past averages.
Gross vs. Net Income
- Gross income is the total income earned. But unfortunately we can't spend all that we earn. Monthly disposable income or net income --- that which is available to be spent --- would be total gross income for the month minus what is withheld for taxes, Social Security, retirement, health insurance or union dues.
- To calculate what we have available to actually spend, we need to take our monthly net income and once again subtract even more. This time we subtract fixed monthly expenses like housing (either rent or mortgage payments), electricity, insurance and car payments.
Fixed expenses are generally things that have the same payment every month. Some payments may vary slightly and could still be considered "fixed" --- for example, electricity or food. You may use slightly different amounts of electricity every month, but you will still owe something for electricity every month, and the same logic applies to food and many other expenses.
- Finally, after taking out monthly deductions for taxes and other things that are removed from our paycheck and accounting for fixed expenses, we need to subtract monthly variable expenses. These could be things like gasoline, entertainment, clothing and other forms of insurance that come at irregular times of the year. We end up with our earned disposable income for the month. To this we can add any monthly income from investments like interest and dividends. The result is our disposable or spendable income for the month.