How much money do you have coming in each month?

As easy a question as this seems, you really need to look at not how much money you “make” but how much money actually winds up in your bank account.  Let’s look at this as an example … you are offered a job and are told you will be making $20.00/hour.  If you work a standard 40 hour work week, this equates to the following:

40 hour work week = $800.00

52 weeks per year = $41,600.00

Average monthly = $3,466.66

The $3,466.66 you make monthly would be your GROSS earnings.  Unfortunately, this is not what you actually get paid.  You’ll need to deduct taxes (Federal, State, Social Security, Medicare), possibly medical deductions, maybe money you put into your company’s retirement plan, etc.  What you are left with is your NET monthly amount … what your paycheck actually pays you.

There may be additional sources of income to consider: if you are married, you can include your spouse’s net earnings (from work, unemployment, social security, etc).  You may be receiving alimony.  If you have rental properties that you own, the rents you are paid are part of your income.  Look for sources of income that are regularly paid to you.

An easy way to figure out how much money you actually have available to spend in a month is to look at your monthly bank statement and see what is DEPOSITED (or credited) into your account each month.  Gather your last three months of bank statements, a calculator, a pad of paper and a pencil.

Take your statements and look for all recurring deposits into your bank account – things like payroll, rents, spousal support, etc.  Do not include one-time events like birthday money or random bonuses since these cannot be counted on all the time.  Total the deposits and divide that number by three (since you are looking at 3 months of statements) to get a bottom line of what you have to spend each month.

Knowing this number is your reality … it’s important to know this.