Net pay?

[dawnwes]

I admit I am confused about what net pay is. We currently have so much taken out and put various places before we even see the check, so saying, "Just look at what your take home is" isn't really helpful.

We are choosing to have health insurance, multiple retirement account withdrawals, and a large savings amount taken out. We could choose not to do this and pay it all after we get our check but we don't.

So, for ME, net is all those choices above plus what I take home. The regular taxes, SS, and firm mandated retirement savings are not part of net, but part of gross.

However, apparently not everyone agrees with me and thinks that it doesn't matter if you choose it or not, your take home IS your net pay, regardless.

I am trying to figure out exactly what 25% of our net income is for mortgage purposes (yes, I know I can go lower, buy a cheap house, just have a mortgage I feel comfortable with, etc......but indulge me anyway.)

What do you consider to be net pay?

[Bob B.]

I consider net pay to be the actual amount of my pay check, plus everything I choose to have deducted.

I choose to pay $76 each quarter to have my garbage picked up. Clearly unlikely, but what if my employer sponsored a service for garbage pick up that only cost $70 per quarter, and I could have that amount deducted from my pay check? I would choose that option, but the $70 quarterly charge would still be part of my net pay.

[MonkeyMama]

My paycheck has only been "gross minus taxes". So, that is all net pay is, to me. (All insurance and retirement comes out of our net paychecks - always has).

That said, accordingly, I don't know that "net pay" by itself is an overly useful measure. For anything. I think overall we looked at our house purchases more on a big picture level (not so monthly payment focused). Of course, you have to factor your net pay and monthly retirement savings and cost of insurances and so on to determine how much you can dedicate to housing. But, I just don't know if this is a worthwhile exercise on its own?

I have never lived anywhere where less than 25% of net pay could afford a home (or any kind of roof over head), so I guess that part is pretty moot for me.

[LizfromtheBronx]

What's currently deducted from my check are taxes, 401k, health/dental insurance, and my transit spending account designation. I consider what's left my net pay, because the deductions are things that I don't need to calculate in my budget.

[Petunia 100]

Gross pay minus mandatory deductions is disposable pay. Disposable pay minus voluntary deductions is net pay.

I think it is fine to base your mortgage on disposable pay. The general rule of thumb of 25% of net seems to assume that disposable and net are the same. Often they are, but not always.

[krantcents]

Net pay is after mandatory and voluntary deductions. You can count your voluntary deductions as something you want to add back, but it usually satisfies some item in your budget.

[dawnwes]

Right, but it is a percentage as well.

College funds are automatically taken out
Contribution to our ROTH is auto taken out
401K
Other retirement deductions
Vision
Dental
Medical
"other" savings

Heck, we used to have a car payment auto deducted from my paycheck.

Net pay is after mandatory and voluntary deductions. You can count your voluntary deductions as something you want to add back, but it usually satisfies some item in your budget.

[dawnwes]

Sounds like there are discrepancies and different ways of thinking about it on this board as well.

[snafu]

I view net pay as remainder after mandatory deductions and designate other categories for the deductions I choose. We all have such variance in how we use/budget/categorize money.

[LivingAlmostLarge]

I once did what they called "net" online as gross-taxes/ss and saw we "saved" according to forums 50% of net. Big deal. What I look at more is what we need to live off because big picture we're living more on 33% of gross and our taxes and other stuff is closer to 30%. Meh.

I couldn't live anywhere if I only used 25% of my net pay we'd live in a studio. So instead housing takes up 50% of our take home if not more and the rest of our take home is living. But our housing is outrageous.

I think real estate is so location dependent you just have to know you market and how to live. You can have a $3k mortgage payment and still be "frugal" in a very HCOLA if the rest of your expenses are low, ie no car payment, eating out, etc. It's just the nature of the beast.

[Eagle]

I am trying to figure out exactly what 25% of our net income is for mortgage purposes (yes, I know I can go lower, buy a cheap house, just have a mortgage I feel comfortable with, etc......but indulge me anyway.)

What do you consider to be net pay?

Net Pay can be defined as the remaining amount of an employee's gross pay after deductions such as taxes, retirement contributions, etc. are made.

We contribute towards taxes, health insurance, life insurance, and 401k. All those are taken out and we consider the remaining our net pay.

Another factor to consider is your yearly salary. Personally, I don't think a mortgage should be greater than 2-3 years of a family's yearly salary.