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Know your numbers · Lesson 2 of 12

Find Your Real Take-Home Pay

Learn the difference between gross and net pay and find the take-home number every budget starts from, even if your pay changes.

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THE WRITTEN LESSONFollow along at your pace

Every budget starts from one number: the money that really reaches your account each month. In this lesson you find that number, whether you are paid a steady wage, paid every two weeks, paid unevenly or working for yourself.

Two numbers on every payslip

Your pay has two numbers. Gross pay is what you earn before anything is taken out. Net pay, also called take-home pay, is what is left afterwards, and it is what actually lands in your account.

Your budget starts from net pay, because that is the money you can spend. Gross pay is only a starting point on the way to it.

Two bars side by side. A taller blue bar labelled Gross pay, $4,000, and a shorter green bar labelled Net pay, $3,000, with the word Take-home under it. A wallet with a tick and the label Budget from this one is on the right.(opens the full-size picture)
Gross pay is the tall bar. The shorter green bar is the one to budget from.

How big the gap is

The gap can be large. Across the OECD, a group of mostly richer countries, income tax and social contributions took about a quarter of an average worker’s pay. It varies a lot from country to country, so your own gap may be smaller or bigger.

For example, a job paying $4,000 a month might bring home about $3,000. That is a round example, not a rule: your payslip shows your real numbers.

A bar for pay before tax with a red section at the end labelled About 1/4 taken out, for income tax and social contributions. A globe is labelled Varies by country. Below, a stack of coins marked $4,000 points to a smaller stack marked $3,000.(opens the full-size picture)
About a quarter taken out is an average, and it varies by country.

Read your payslip

To find your number, read your payslip line by line. Near the top is gross pay. Below it come the deductions, which are amounts taken out before the money reaches you: income tax, social insurance, and things like pension or loan payments. At the bottom is net pay.

Then check that net pay matches what reached your bank account. If it does not, ask your employer or payroll team to explain the difference.

A pay slip with gross pay of $4,000 at the top, then three deductions in red (income tax, social insurance, and pension or loan), and net pay of $3,000 highlighted at the bottom. A dashed arrow leads to a bank account deposit of $3,000 with a tick.(opens the full-size picture)
Gross at the top, deductions in the middle, net pay at the bottom.

When your pay changes

If your pay is not the same every month, add up your take-home pay for the last year and divide it by twelve. If you are paid every two weeks, multiply one payment by 26, then divide by 12. That is because 26 payments make a year, while a year has 12 months.

And if your income swings a lot, plan on a lean month, not an average one. One way to do that is to take the lowest month of the last six as your baseline. Better months can then go into savings.

Three ways to find a monthly number. Year total divided by 12, with $36,000 divided by 12 giving $3,000. One payment times 26 divided by 12, with $1,500 giving $3,250. And a bar chart of uneven months with the lowest bar in red, labelled Plan on the low one.(opens the full-size picture)
A yearly average for steady pay, the lowest month for uneven pay.

Working for yourself

If you work for yourself, nobody takes tax out for you. So set tax aside first, in a separate pot, every time you are paid. Only what is left is your take-home pay.

How much to set aside depends on the tax rules where you live, so check them or ask a local adviser.

An invoice for $2,000 marked No tax taken out. Two jars are on the right: a Tax jar with $500 in it and a fuller Take-home jar with $1,500. A label reads Tax goes first, in its own pot.(opens the full-size picture)
Tax goes into its own pot first. What is left is yours to budget.

Why gross can mislead you

Pay offers and loan limits are often quoted in gross pay, so it is easy to plan with money you will never see. In one worked example, a raise of $100 a month before tax added only about $63 to take-home pay.

A raise is still a raise. But before you plan to spend it, find out what it adds to your net pay.

A job offer card reading $48,000 a year, before tax, next to a stack of coins labelled Money you'll never see. Below, a raise of +$100 a month before tax points to +$63 a month in take-home pay.(opens the full-size picture)
A raise of $100 before tax added about $63 to take-home pay in this example.

YOUR TURN

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Read the full lesson script

Welcome back. In this lesson, you'll find the one number every budget starts from: your real take-home pay, the money that actually reaches your account each month.

Your pay has two numbers. Gross pay is what you earn before anything is taken out. Net pay, or take-home pay, is what's left, and what actually lands in your account. Your budget starts from net pay, because that's the money you can spend.

The gap can be large. Across the OECD, a group of mostly richer countries, income tax and social contributions took about a quarter of an average worker's pay. It varies a lot from country to country. So a job paying four thousand dollars a month might bring home about three thousand.

To find your number, read your payslip line by line. Near the top is gross pay. Below it come the deductions: income tax, social insurance, and things like pension or loan payments. At the bottom is net pay. Check that it matches what reached your bank account.

If your pay isn't the same every month, add up your take-home pay for the last year and divide it by twelve. If you're paid every two weeks, multiply one payment by twenty-six, then divide by twelve. And if your income swings a lot, plan on a lean month, not an average one.

If you work for yourself, nobody takes tax out for you. So set tax aside first, in a separate pot, every time you're paid. Only what's left is your take-home pay.

Why does this matter? Pay offers and loan limits are often quoted in gross pay, so it's easy to plan with money you'll never see. In one worked example, a raise of one hundred a month before tax added only about sixty-three to take-home pay.

So remember: budget from net pay, the money that actually reaches your account. Read your payslip, and check it matches. And if your pay changes, use a yearly average, or a lean month. Before the next lesson, find your last payslip or deposit, and write down your monthly take-home pay. Next, you'll sort your costs into needs and wants.