How do you calculate gross monthly income?

Introduction

Understanding what gross monthly income actually is and how to calculate it is a necessary skill for everyone who wants to efficiently handle their finances and budget their monthly living expenses. In this post, we will define gross salary, explain how it is calculated, and what is being deducted from it. Whether you are a salaried or hourly employee, this article will provide you with the knowledge you need to gross monthly earnings and take control of your finances.

What is Gross Income?

Gross income is the total amount of income earned by an individual or a company before any deductions or taxes are taken out. It comprises all sources of income, such as salaries, wages, bonuses, commissions, rental income, and investment income. Gross income is an important financial indicator that may give insight into an individual's overall financial health and earning potential. Moreover, this metric is important when applying for a loan or a credit card, as lenders or credit card companies will use it to assess your financial viability. Apart from gross income, there is net income, which is the take-home pay that is left after all withholdings are accounted for.

What Deductions Are Taken from Gross Pay?

Depending on the country you live in and the employer you work for, there may be differences in the deductions made from your gross salary. However, some of the most typical deductions you could see on your salary statement can be seen in the table below:

How to Calculate Your Gross Monthly Income?

After learning a bit more about gross monthly income, we’ve come to the interesting part – how to calculate it! This is determined by how you are paid - whether it is on an annual or hourly basis. A salaried employee is paid a fixed amount that is usually divided over a year. If you're paid by the hour, also known as a wage employee, your payment will vary depending on how many hours you work. Depending on this, let’s take a look at the two different ways in which the gross monthly income can be calculated.

Calculating Gross Monthly Income as a Salaried Employee

If you are paid on an annual basis, the calculation is fairly straightforward - simply divide the total amount of money (salary) you are paid for the year by 12.

$GrossMonthlyIncome=\frac{AnnualSalary}{12}$

For example, if you earn $80,000 per year, the formula calculates your monthly gross income to be $6,667. To arrive at your total gross number, make sure you account for any short or long-term bonuses you may receive.

Calculating Gross Monthly Income as an Hourly Employee

The calculation is a little more complicated for hourly employees – you need to first multiply your hourly wage by the number of hours you work per week, and then multiply the total by 52, thus finding your gross annual income. Then, divide your annual gross income by 12 to find the monthly amount. If your hours vary from week to week, use your best estimate of the number of hours you work on average.

$GrossMonthlyIncome=\frac{HourlyPay\ast HoursPerWeek\ast 52}{12}$

For example, if your hourly wage is $20 and you work 40 hours per week, your weekly gross pay is $800. Multiplying this figure by 52 yields a yearly gross income of $41,600. Finally, dividing by 12 yields a monthly gross income of $3,467.

You can generally add any special circumstances, such as a certain number of overtime hours per month or a recurring bonus or commission, to your gross monthly income. The most common method is to divide the amount of overtime pay (or bonus or commission) you've received over the past year by 12. This amount would then be added to your gross monthly income from your base pay.

One Pager Cheat Sheet

• To handle finances and budget living expenses efficiently, it is important to understand what gross monthly income is, how to calculate it, and what is being deducted from it, with this article providing necessary knowledge for calculating gross salary for both salaried and hourly employees.
• Gross income is the total income earned before any deductions or taxes, comprising all sources of income and an important financial indicator used to assess financial viability, while net income is the amount remaining after all withholdings are accounted for.
• According to context, gross income is earned before deductions or taxes while net income is remaining after all withholdings are accounted for so the statement "Net income is always bigger than gross income" is false.
• The deductions taken from gross pay vary by country and employer, but common deductions include items such as taxes and insurance premiums, as shown in the provided table.
• Learn how to calculate your gross monthly income based on whether you are paid on an annual or hourly basis.
• To calculate the Gross Monthly Income of a salaried employee, divide their Annual Salary by 12, accounting for any additional bonuses.
• To calculate gross monthly income as an hourly employee, one must multiply hourly wage by the number of hours worked per week, multiply by 52, then divide by 12, and add any special circumstances such as overtime pay or bonuses.
• To calculate monthly gross income for hourly employees, multiply the hourly wage by the number of hours worked per week, then multiply that by 52 to get the gross annual income and divide it by 12 to get the monthly gross income, but adjust for varying work hours and include special circumstances like recurring bonuses or commissions.