How to Budget Series: Part 3 – Income

For budgeting purposes the income side of the equation can actually be quite confusing at times.  If you are an employee, does it mean how much you get deposited in your account or is it your gross?  If you are commisison income, is it the gross commission income or is it after taxes? If you are self employed, is it the gross receipts you deposit or the amount after expenses?  For our purposes we will make it as simple as possible, which is what is should be for all budgets.

If you are receiving a paycheck your income will be what you get deposited into your account.  With some considerations though. You would look at your pay stub and determine if the amounts being deducted from your gross payroll are reasonable and items you would want deducted.  You should see federal, state, medicare, and social security deductions. Anything else should be reviewed and you should determine if they fit within your budget. Keep in mind any saving, investing, insurance, etc. will be part of your budget so you should make sure those amounts match what you have determined are appropriate for you.  Nothing goes without review and confirmation…nothing.

For commission and self employment income the income number will be dependent on whether you are a Schedule C or some other entity type.  For our purposes, your income will be what you receive as a deposit into your personal checking account. You should work with your accountant to determine what amount to set aside right away for taxes and expenses for the business side of things.  For example, you may need to set aside for self employment tax which can be substantial.

No matter the source of income, be sure that you have considered the tax and expense implications before considering your own personal budget.  You should consult with an accountant regarding your personal situation if you haven’t already to ensure you are considering all the required outflows before knowing how to allocate for budgeting purposes personally.

2 thoughts on “How to Budget Series: Part 3 – Income

  1. Pingback: How to Budget Series: Part 5 – Pulling it all Together

  2. Pingback: Financial Stage 1: Surviving – Mile High Money Guy

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