When you are making a budget, you will want to determine whether to use your gross or net income in your planning. Which Income Figure Should You Use for Budgeting? Whatever is withheld, the remainder is your net income. In addition to tax withholdings, your employer may also withhold funds for retirement contributions, health insurance premiums, or other benefits. Your gross income is reduced by your withheld tax amount, and what remains is your net income. The simplest example is when your employer withholds taxes from your paycheck. It is also referred to as your take-home pay. Your net income is your gross income minus deductions. You would therefore have a gross income of $50,000. Now, if you have multiple sources of income-say a full-time job paying $40,000 and a part-time job paying $10,000-then your gross income would include the second source. If you take a job position that pays $40,000 per year, then your gross income will be $40,000. In most cases this will be income from your employer. Your gross income is the total amount you are paid before any deductions.

While the concepts are certainly very similar across other contexts, like business usage, just remember that we are talking about your personal income. One quick note: we are focused exclusively on these terms in the context of personal finance. In this post we will give you a quick refresher about the differences between the two terms and how you can use them when budgeting. Are you familiar with the difference between gross and net income? If so, which one should you use when you are budgeting for major purchases? As it turns out, the concepts of “gross” and “net” incomes are very simple, but the implementation can be a bit more complicated.

Personal budget percentages