Most of us who work for a regular salary are used to seeing our income expressed in terms of gross pay. Often that’s the most we think about it. We might compare our own magic number to the national average if it crops up in a news story or work out the difference if we’re looking for a new job or angling for promotion, but this isn’t particularly frequent.
So, do you actually know how much of that salary makes it into your bank account each month? Or how much disposable income you have once you take your regular outgoings out of the equation?
Calculating your take home pay
There are a number of factors that may have to be deducted from your salary in order to work out your take home pay. The main two are income tax and your National Insurance contributions but other factors such as any money you invest into a pension or use to make student loan repayments must also be accounted for.
Using a tool like the salary calculator at Money Vista can help you work out your basic take home pay. You might also have to take other factors into account when calculating your salary if, for example, your tax affairs are particularly complex or you have other deductions or sources of income.
Working out a household budget
Working out your annual and monthly take home pay will let you know how much money you have coming in minus those deductions that are made at source. We all have other outgoings however and, whether you’re saving for a particular goal or simply want to keep track of your finances, it can be useful to make a household budget.
The basic maths is very simple. If you don’t have more coming in than you have going out, you’re storing up trouble for yourself. Many people will make a list of regular payments out from their monthly bank statements – mortgage or rent payments, utility bills, mobile phone contracts, monthly insurance and loan repayments etc.
This is an essential part of the budget but you also have to take irregular and less frequent expenditures into account. If you pay for your car insurance and road tax annually for example, this should be broken into a monthly cost. Grocery bills should be averaged and you should also remember things such as holidays, birthdays and any extra expenditure over the Christmas period.
It might also help to keep meticulous records of all your spending for a few months. Many people underestimate their expenditure and you might be surprised to see where your money ends up and exactly how much (or how little) of your salary you have left each month.