How to calculate your gross monthly income: A complete guide
Knowing how to calculate your gross monthly income is the first step to achieving financial freedom.
This approach will assist you in making well-informed financial choices, whether you're looking to create a budget, purchase a new car, or plan for retirement.
Let’s look at how to calculate your gross monthly income and see how it affects other parts of your finances and daily life.
What is gross income?
Every month, you earn money from your job.
Your gross monthly income is the total amount you earn in one month. For instance, if your salary is $6,000 monthly, your gross monthly income is also $6,000.
Gross monthly income is how much you make before any taxes or deductions. This amount is important for filing taxes, getting a loan, or applying for public assistance.
But gross monthly income is not what you see in your bank account. Your net income is what you receive after taxes and other deductions.
That is the amount deposited into your bank account.
Why Calculate Gross Monthly Income?
Knowing how much money you make each month is helpful for planning how to spend it.
It shows you all the money you earn before anything is taken out.
This helps you keep track of what you spend, save some money, and make good choices with your cash.
Although, there are some other advantages to figuring out your gross monthly income:
- It helps you set goals, predict future earnings, and retirement strategy.
- A higher gross income can improve your chances of getting approved for a loan and may lead to better terms.
- With a higher gross income you can retire early.
- Your gross income is also needed to calculate your taxable income, helping you figure out how much tax you owe.
- You can use your gross income to compare your salary with others in your industry.
- Some government assistance programs consider gross income to determine if you qualify for help.
How do you calculate gross monthly income?
People get paid in different ways. Some have a yearly salary, while others are paid every two weeks, twice a month, hourly, or as self-employed workers.
How you calculate your gross monthly income depends on how you are paid.
Here’s how to calculate gross monthly income for both salaried and hourly workers:
Salary
Use this formula:
- Annual salary / 12 = Gross monthly income
To find your gross monthly salary, just divide your annual salary by the 12 months in a year.
For instance, if your annual salary is $90,000, take that amount and divide it by 12.
The result is $7,500, meaning your gross monthly income comes out to $7,500.
Hourly
To calculate your gross monthly income as an hourly employee, follow this formula:
- [(Hourly pay x number of hours per week) x 52 weeks] / 12 = Gross monthly income
For example, if you earn $15 per hour and work 40 hours a week, you will make $600 each week.
Multiply that by 52 weeks to find your annual income, which totals $31,200.
Dividing $31,200 by 12 gives you a gross monthly income of $2,600.
Why use gross income instead of net?
When looking at finances, using gross income instead of net income gives a clearer picture of a person's total earnings before any deductions.
Gross income is important for many financial decisions, such as budgeting, getting loans, and negotiating salaries.
Knowing your gross income helps you understand your financial situation better, which is essential for making smart choices about spending, saving, and creating a retirement strategy.
Types of Tools Used for Calculating Gross Monthly Income
Calculating your gross monthly income is important for tracking your earnings and achieving financial freedom.
Here are some common tools you can use:
- Basic Calculator Apps: Use simple calculator apps on your smartphone or computer. Just enter your salary or hourly wage and do the math to find your gross monthly income.
- Spreadsheet Programs: Programs like Excel or Google Sheets let you create custom formulas. This makes it easy to automate your calculations and design your own income statements.
- Online Calculators: There are many websites that offer gross income calculators, which can help you quickly and accurately calculate your earnings.
- Financial Management Apps: Many mobile apps focused on managing finances have features for calculating your gross monthly income.
- Tax Preparation Software: These programs often include tools for estimating gross income, making it easier to understand your finances during tax season.
- Personal Finance Advisors: Advisors like Blossom Financial can provide calculators and resources to help you figure out your gross monthly income effectively.
Conclusions
We all want financial freedom and a dream retirement in a great city where we can enjoy our hobbies while staying within our retirement income.
Knowing how to calculate your gross monthly income is the first step to creating a plan for financial stability and securing a retirement income that supports your lifestyle.
It will also help you plan effectively, invest wisely, and negotiate your salary when the time comes.
Now that you know how to calculate your monthly income, it’s time to get to work!
