- What’s included in your gross income?
- How do you calculate your monthly gross income?
- Calculating monthly gross income for salaried employees
- What about biweekly income?
- Calculating monthly gross income for hourly employees
- Why is your monthly gross income important?
- What’s the difference between monthly gross income and net income?
- Foolish bottom line
Gross income is the money you earn before taxes and other deductions reduce it to your net income. Most people know their net income: it’s the money that comes into your bank account in the form of paycheques and helps you create your budget. Yet, knowing your monthly gross income is also important, as it can help you get approved for a loan or calculate how much retirement savings you need to sock away.
How do you calculate your monthly gross income? Let’s take a closer look.
What’s included in your gross income?
Your gross income is the sum of everything you earn within a specific period. If you were a business, your gross income would be all revenue that was “top line.” Sources that contribute to gross income include:
- Salary
- Bonuses
- Commissions
- Income from side gigs or freelance work
- Rental income
- Investments (such as interest, dividend payouts, and capital gains)
In contrast to gross income, your net income is the amount you earn after taxes and deductions (like insurance premiums or certain group RRSP contributions).
How do you calculate your monthly gross income?
Calculating your monthly gross income is fairly simple. But the calculation will differ based on whether you earn an annual salary or if you’re paid hourly. Let’s take a look at both.
Calculating monthly gross income for salaried employees
If you’re paid an annual salary, figuring out your monthly gross income is straightforward. Your annual gross income is the amount your employer quotes before taxes and deductions. To convert it to a monthly figure, simply divide by 12.
Formula: Monthly gross income = annual salary ÷ 12
Now let’s say you have multiple income sources. You earn an annual salary of $84,000, make $3,000 per month in rental income (or $36,000 per year), and have a side hustle that earns you $12,000 per year. Adding these together gives you a total annual income of $132,000.
- Step 1: Total annual income: $84,000 + $36,000 + $12,000 = $132,000
- Step 2: Convert to monthly income: $132,000 ÷ 12 = $11,000
Your gross monthly income, in this case, is $11,000.
What about biweekly income?
Many Canadians are paid biweekly rather than monthly, so it’s helpful to know that figure as well. To estimate your biweekly gross income, divide your monthly gross income by two.
- Biweekly gross income = $11,000 ÷ 2 = $5,500
This simple calculation can help you budget more effectively, whether you’re tracking income for personal finances, applying for a loan, or planning future investments.
Calculating monthly gross income for hourly employees
Calculating your monthly gross income with an hourly wage is a bit more difficult, but fortunately not too math-intensive for your basic calculator. To calculate your gross monthly income, you’ll have to go through three steps:
- Multiply your hourly wage by the number of hours you work every week
- Multiply the resulting product by the number of weeks in a year (52)
- Divide the product by 12
As a formula, it looks like this: Gross Monthly Income = (Hourly Wage x Hours per Week) x 52 ➗12
Now, for those who work variable hours, that is, you work a different number of hours each week, you might have to take your best guess as to the average hours you work weekly.
Let’s walk through an example of someone getting paid $30 per hour and works 40 hours per week.
Step 1: Calculate weekly income
$30 × 40 = $1,200 per week
Step 2: Convert to annual income
$1,200 × 52 weeks = $62,400 per year
Step 3: Convert to monthly income
$62,400 ÷ 12 months = $5,200 per month
So, if you earn $30 an hour and work 40 hours every week, your gross monthly income is $5,200 before taxes and deductions.
Why is your monthly gross income important?
Perhaps the best reason to know your monthly gross income is to help you calculate how much you should sock away for retirement. Most experts agree you should save around 10% to 15% of your gross annual income for retirement. Your monthly gross income helps you understand how much you should be contributing every month to retirement. If your gross monthly income is, say, $6000, then you’d want to put $600 to $900 in a retirement account.
Your monthly gross income can also help you apply for loans or credit. Most lenders will look at your gross monthly income to decide if you have the financial support to pay back what you borrow. If your gross monthly income is above a certain threshold, they’ll feel comfortable letting you borrow the amount you requested. In the same way, some landlords might ask for your gross monthly income, which helps them decide if you have the income to pay your rent.
What’s the difference between monthly gross income and net income?
In contrast to gross income, net income is the sum total of your annual gross income, taxes, and all deductions. It’s basically the “take home” amount that enters your bank account on payday. Knowing your monthly net income is also important, as it can help you create a realistic budget.
Foolish bottom line
Knowing your gross monthly income helps you understand how much money you’re earning before you factor in taxes and deductions. As long as you know how much money you earn per year (or how many hours you work per week and how much you make per hour), you should have no problems calculating your monthly gross income.