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Understanding Gross vs. Net Income and Budgeting Basics

Learn how to calculate and differentiate gross and net income, including pre-tax deductions and taxes, to manage your budget effectively. Gain insights into maximizing your net monthly income for better financial planning

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Understanding Gross vs. Net Income and Budgeting Basics

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  1. Budget Notes

  2. Gross Income • the total amount of money one earns • Ex. $6.15 an hour • Multiplied by 40 hrs. per week_______________ • Multiplied by 52 weeks per year________________ • Divided by 12 months per year________________ • Equals = Gross Monthly Income ________________

  3. Gross Income • the total amount of money one earns • Ex. $6.15 an hour • Multiplied by 40 hrs. per week____$246_________ • Multiplied by 52 weeks per year____$12792_______ • Divided by 12 months per year____$1066_________ • Equals = Gross Monthly Income ____$1066_______

  4. Budget Notes • Pre- tax deduction – Any money that is taken out of your gross pay before you pay taxes. These deductions are benefits paid by your employer. • Income tax – Money taken from your gross monthly income by the government

  5. Tax • Federal Income Tax (9%) • $1066.00 * .09 = ______________ • FICA – Social Security and Medicare (7.65%) • $1066.00 * .0765 = ________________ • State Tax (7%) • $1066.00 * .07 = _______________ • Net income – the total amount of money you make after taxes. From the amount you will pay for rent, food, transportation, etc.

  6. Tax • Federal Income Tax (9%) • $1066.00 * .09 = _____$95.94_______ • FICA – Social Security and Medicare (7.65%) • $1066.00 * .0765 = _______$81.55_______ • State Tax (7%) • $1066.00 * .07 = ______$74.62_________ • Net income – the total amount of money you make after taxes. From the amount you will pay for rent, food, transportation, etc.

  7. Budget Notes • What would your net monthly income be in this example? • $813.89

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