What income is factored into the budget

It is important to understand the difference between gross income and net income in order to fully optimize your budget. The gross income is the total amount of money earned before any taxes are withdrawn and before anything is deducted from the paycheck. Therefore, someone who was working for ten dollars an hour and who was working forty hours a week would have a gross income of four-hundred dollars.

Net income is the actual amount of money that will be brought home, put in the bank or transferred to the earner by whatever means is common in their circumstance. It is the actual amount of money that is left after all of the deductions have been made from their check and represents the actual cash flow that they have into their personal fiscal realm of control.

The budget must be based on the net income(s) of the household only for those who are going to be responsible or participating in paying the bills. For example; if you rent a room out to someone else, the money that the tenant pays you should not be factored into the actual budget. This can be set up separately as quite often this money cannot be depended on and trying to budget money that one does not possess is not only foolish but dangerous as well.

Along the same lines, if one or more of the individuals included in the budget has a side-business or a hobby that generates additional income, these amounts should not be factored into the budget unless there is a very good assurance that the money will be there each and every month.

Any additional income that is possible but not guaranteed should be considered but not factored into the actual budget itself. While it may be nice to suppose that the money will be there and is most certainly very pleasing when it is, if it is not and it has already been spent, the consequences can be very costly and very detrimental to your lifestyle and ultimately, even to your health.