Knowing and Understanding Your Income

I work with families that come from all income levels, and I often have to ask them what their estimated annual gross income is, so that I can check eligibility requirements for different programs and services. It amazes me how many people do not know what their annual income is. If they don't know their annual, then I ask for their monthly and simply multiply it by 12 myself. However, many times they still do not know what their monthly income is.

Being in control of your finances starts with KNOWING your finances. In order to be able to make sure that the money you have going out to pay bills, go shopping, save, and invest you need to know how much is coming in.

Even if you receive government assistance or other forms of income not from a traditional paycheck, you should still consider that monies as income. For IRS purposes, you do not have to include SNAP (food stamp) benefits as income. However, for the purposes of understanding the inflow and outflow of the money you spend, it is important to include SNAP benefits when doing your monthly budget. The benefit of receiving monies for your groceries through SNAP is meant to be temporary. Meaning, when you no longer qualify for SNAP benefits, you will need to budget in grocery monies from your income. Better to practice now, than to be in the dark when you have to start paying for your groceries without any assistance.

Many people get confused with Gross and Net Income. Here is a little breakdown to help you understand the difference.

Gross Income is the amount that you make before any tax or other deductions are made. For example, if you work a full time job at $14.00/hour then your annual gross income would be:

40 hours per week x $14.00 per hour x 52 weeks per year = $29,120.00

 

Net Income is the amount that you make after taxes and other deductions are made. Common deductions that are made from a typical paycheck are Federal Taxes, State Taxes, Health Care Premiums, Flexible Spending Accounts, and 401K or other retirement plans. In other words, net income is the amount that you take home or the amount you see on your paycheck or through direct deposit.

 

Be aware of your gross and net income. Understand the deductions that are taken from your gross pay. Know your income so that you can control the outflow of money. Smart money management begins with making sure that you don't have more money going out than you have coming in. And the only way you will be able to do this is to KNOW YOUR INCOME!