Learn to budget your gross income or net income.

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Money Management Part 8

Budgeting on gross income and net income

Your Income

The first primary element of budgeting is Income. It simply means the total amount of money (and other non-monetary benefits) you receive per a given timeframe (daily, weekly, monthly, etc.). Income takes various forms: some are simple while others are complicated; some are regular, others not; a few are one-time windfalls, while still others come in small streams. It differs with every individual so that there are different methods of computing them. This is only one of them.

Non-monetary goods and services received are sometimes included because they benefit you also, so that they need be quantified as if you bought them. According to Ben Franklin, “A penny saved is a penny earned,” so goods and services received free are also earnings. However, most budgeting schemes compute only the actual money received as income, because it often makes very little difference in the computations.

For example, if the freebies are considered earnings and therefore part of income, they must also be expended and thus are also expenses. If you grow your own free range chicken and one day ate one, the market cost of the chicken may be considered income because you received the benefit of having a chicken for food. However, it is also expense because you actually ate the chicken and thus did have one as if you bought it.

Somewhat confusing for you? I bet. But this is for discussion purposes only, not for actual computations. Better stick to tangibles.

• Gross Income

Incomes come from many sources and as stated above takes many forms, both for services rendered and goods sold. They may be salary or wage, rent from property/ies, sales and sales commissions, professional retainer, net income from business enterprises and more.

Some are one-shot income items such as sales commissions, inheritance, gifts, and such. Many are recurring and regular like pensions, salaries, rent from properties and allowances. Whatever the form or nature, the actual total amount you receive in a given timeframe from all these is called gross income.

To determine your gross income, try to fill in the spaces in the appropriate boxes below*:

*Please add items as needed

In computing for, say, the monthly gross income input only those moneys you receive for that particular month. For salaries, list only your take-home pay, not the gross amount listed in the pay envelope before the deductions.

In cases where they are variable such as sales commissions, consider only the lowest amount you are likely to receive. It is no good to put in the higher figure only to have a shortfall later. Better to list the lower amount and realize some savings if you actually receive more. You would then have added to your disposable income and also savings for the succeeding month.

• Net Income

Your gross income minus all payments, deductions and expenses is net income. When expenses exceed income, it is called negative net income. When something is left, it is called positive net income, and the amount remaining is disposable income.

Money Management Part 9

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