Budget off of gross or net?

[LivingAlmostLarge]

I asked because someone today said their rent was 28% of net. I usually calculate to gross. Is this wrong? I guess I feel weird because our net paychecks look really tiny. Should we calculate everything off of net?

Do you calculate off of net or gross?

[Kris10Leigh]

I budget off of net, absolutely! Furthermore, I budget I budget per paycheck out of one account and per month out of another. All our monthly bills come from one account and our living expense out of another.

To come up with how much house you can afford, you should look at percentage of gross and other things as well. Other than that, I would do net because that is what you really have.

[boefixepa]

I budget off of net, but I guess it depends what you have coming out of your check. If I did it off of gross I'd have to have a withholdings category and an health insurance premiums category and that would make thing more complicated. Now if I had all kinds of other things like investments and the such taken out I might reconsider. I think it's just one of those 'depends on what you want' kind of things.

[Broken Arrow]

Net. The end.

I suppose if I was musing about something specific, I might compare something to my gross. My 401k is one such for example, because the exact amount of the contribution is calculated off of the gross. That and I don't calculate such things into my usual budget. But that's the exception, not the rule.

[tinapbeana]

i budget off of net as that's what i actually have to work with. even when my 401k was taken out of my check at my last job, i was salary and the $ amt was constant so i didn't worry about tracking that in my budget, i worked a budget off the new net amount.

only time i've worked with my gross is when we got the mortgage. IMO, it's silly to even do it then...

[cschin4]

I don't see the point of budgeting off of "gross". To me, that is imaginary money you will never see since the govt confiscates it. Much better to budget off of net since most of your bills are paid with your net income. But, I usually get bashed on most message boards for even suggesting this. So, do what makes "sense" to you.

[safari]

Net, absolutely. Gross income is only used by lenders and credit card issuers.

[disneysteve]

Well certainly, our spending can only come out of net, since that's the money we actually have available to spend.

However, our savings is based on gross. For example, I designate 17% of my gross pay for savings. Similarly, your 401k or 403b contributions are calculated on your gross pay.

[smartatmoney]

I budget from gross. I just have line items for federal, state, ss, medicare, as well as other items.

[PRICEPLUS]

Budget using Net! I can only budget with that that is available to me!

[lrjohnson]

I always specify net or gross specifically. Which way I go depends on the context.

Why would I use gross? In some ways, I look at my take home pay as my net income, but it's NOT just taxed. I have a lot of retirement coming out, deferred comp, and union dues and health insurance etc. Net to most is gross less taxes (right? maybe not), but in my mind my net is my actual direct deposit amount. And I know my true gross, and my "fake" net, but I had to get out a paystub to determine my "true" net.

Not totally off topic, I am excited to determine that my rent is 14% of my net income! (11% of my gross, 16.5% of my take home pay.) No wonder I'm coming to terms with being a renter (in CA).

[Amanda W]

I budget off net for the most part. Our charitable giving and savings are based off gross.

[LivingAlmostLarge]

I have to do gross or else our budget looks awful. Most of our money is eaten up by housing costs, which isn't terrible, but on net it looks awful. I am trying gross and making everything else a line item.

[tinapbeana]

Originally Posted by lrjohnson

Not totally off topic, I am excited to determine that my rent is 14% of my net income! (11% of my gross, 16.5% of my take home pay.) No wonder I'm coming to terms with being a renter (in CA).

OT: from what i understand that is exceptionally reasonable in CA. i don't see how folks do it... makes me appreciate where i live. mortgage is 11.5 of take-home, 11.1 of net, 7.7 of gross

[kristinecfp]

I budget off gross. Actually, I'm a financial planner, and when I'm doing a cash flow plan for a client I start with gross. The main reason is that they may be withholding the wrong amount or they may have other deductions that need to be adjusted for one reason or another, so I always want to discuss and review these items with them. Wouldn't make sense if I started with their net. For the record, I do my own budget from gross as well.

[Broken Arrow]

Yeah, but you're a CFP!

In this context, my budgeting is two parts. My everday budget is obviously net. However, when I am working on specific items such as insurance, taxes, or retirement planning, then it would obviously be done in gross.

I think it's reasonable enough to separate them since I don't really work on the gross-related budget items as much as I do with the net-related items in my budge.

[Budgeteer]

I budget off of gross, although I'd probably advocate most people starting off with net. Why do I use gross?

Information. A huge part of the reason that I budget is the data that it gives me about my money and how it's being spent. If I were to use net, I would lose some of that information and it would obfuscate other portions.

I want to be able to look at my budget and see that my living costs are XX% of my income, that I save XX% in my 401k, etc. Yes, you can still have this with net, but it's less clear and less straightforward. It's a tiny bit more hassle to have to enter tax and what not when I put my paycheck in, but that's not really a big deal.

I think this is even more important when you have health care and those kinds of things deducted. I really want to know/consider that I am spending 5% of my check on things that I've had some hand in deciding to spend. Health care may not really be optional for me, but certainly there are different packages and providers.

Bottom line: I don't think there's anything wrong with net, but I like the complete picture I get with gross.

[b4freedom]

Why should it matter?

Your budget should be a tool. Use it however it works for you.

The net people tend to be the detail people focused on “What I've got, what I need, and will it be enough?”

The gross people tend to be the big-picture people, not so worried about the details. (AKA, financial planners and people who can afford them.)

[doodles44]

I thought net and take-home were the same thing. Can someone advise :-)
Thanks!

I budget off what I get in my paycheck, whatever that is!

[tinapbeana]

Originally Posted by doodles44

I thought net and take-home were the same thing. Can someone advise :-)
Thanks!

I budget off what I get in my paycheck, whatever that is!

doodles, for the bulk of america net is their take-home and that is typically what they budget off of when they budget.

in my world, and i think for many of us here, we consider that we have three 'versions' or views of our income:

gross pay aka what is my salary before anything is deducted,
net pay aka what is my salary after mandetory deductions likes taxes,
and
take-home pay aka what is my salary after voluntary deductions like insurance, 401k, etc.

since i personally don't have medical taken from my check, and there is no 401k, my net and my take-home are the same. for my DH, he has 401k removed, benefits removed, a monthly parking pass removed, and (grrrrr) any breakfasts he's eaten in the canteen over the past 2 weeks. therefore his net (salary minus mandetory deductions) is different than his take-home.

some folks might say net pay when i've referenced take-home and vice versa, but the 3 distictions are still the same.

there are times in your life where it makes financial sense to budget based on gross income, there are times in your life where you need the ease of budgeting based on net. all depends on your situation and location on the path of life