Thursday we talked about how to determine monthly income if you earn an hourly wage. Today, we’re going to talk about **how to determine monthly income if you earn a yearly salary.**

As with the previous post, there are two ways to approach figuring out your monthly income:

- You can use your paystubs.
- You can reconstruct your average earnings.

You will probably want a calculator, a piece of paper, and a pencil to jot down notes.

## Option 1: Using paystubs to determine monthly income

People who earn a yearly salary have the pay stub thing a little easier than the hourly wage people, so if you have access to your pay stubs (and you should, because you should be saving them as a record of time worked and money paid) then this is by far the easiest way to determine your monthly income.

### Step 1: How often do you get paid?

Do you get paid once a month? On the 1st and 15th? Every two weeks? Every week (less likely with a salary)?

Knowing how often you get paid will tell you by what number you have to multiply the amount of your paycheck.

### Step 2: How much do you get paid?

The reason the pay stub method is easier for people who earn a yearly salary is because the amount you get paid every paycheck is the same. (Or it should be close.)

So, if you take how much you get paid each paycheck, and multiply that by how many times a month you get paid, then you should have your monthly income.

This usually only requires one pay stub to figure out, which makes it even easier than figuring out your monthly income from an hourly wage. However, it is good to check that the amount you get paid is roughly the same each pay period (if you’re not sure), so having more than one pay stub is never a bad thing.

*Example:*

If you get paid $980 each paycheck, and you get paid every two weeks (roughly twice a month) then your math will look like this:

$980 x 2 weeks = **$1,960 a month**

The nice thing about the pay stub method is that you don’t have to figure out how much to take out in taxes (or for your 401(k) contributions, or for healthcare coverages), because it’s already been done for you.

Now, if you didn’t like that method, and want to reverse engineer how much you’re getting paid each month starting from your yearly salary, read on.

## Option 2: Reverse Engineering Your Monthly Income

### Step 1: How much do you make each year?

What is the amount that your employer told you that you were getting paid? Write that down.

### Step 2: Figuring out how much you make each month

Take the amount that you make each year and divide it by twelve, and that will give you the starting point for your monthly income.

*Example:*Say you make $36,000 a year.

$36,000 ÷ 12 months = $3,000 a month

One of the benefits of getting paid a salary is often Benefits. However, those Benefits do make your monthly income reconstruction calculations a little more complicated.

So, there are a few secondary questions:

- Does your company offer a 401(k)?
- Are you contributing to it? And, if so, how much each month/each year?
- Does your company offer health care benefits?
- How much do you have to pay for them each month?

**Don’t worry if you don’t know the answers to these questions**, there’s an easy way to check if you’re missing any deductions when we’re all done.

#### Contributing to your 401(k) or health care

If you know how much you’re contributing to these each month, great. See below for the next step.

If you only know how much you’re contributing each year, that’s fine. Just take that number and divide it by twelve, just like you did your yearly salary. (Alternately, you could subtract the yearly contribution/payment amount(s) from your yearly salary, and *then* divide that new number by twelve to get your monthly income. It’s entirely up to you.)

*Example:*If you’re contributing $1,400 a year to your 401(k) your math would look like this:

$1,400 ÷ 12 months = $166.67 each month

You can do the same with health care contributions, of course.

#### What to do with all those numbers?

Subtract your monthly contributions and health care payments from your starting monthly income to get your new monthly income.

*Example:*So we’ve determined that the fictional you is earning a monthly income of $3,000 and is paying $166.67 a month to your 401(k). Let’s say you’re also paying $133.33 for health care coverage through your employer.

$3,000 – $166.67 – $133.33 = $2,800, your new monthly income.

Finding the contribution/payment information may be the hardest part of this section. It should be on your pay stub, or in the information packet that your employer gave you when you started contributing to your 401(k) or paying for Health care.

### Step 3: Taxes, Or But Wait, There’s More

Taxes are the other part that makes reconstructing your monthly income from scratch more complicated the using your pay stub.

Any single person who makes less $34,000 will be in the 15% federal income tax bracket. Any single person who makes between $34,000 and $82,400 will be in the 25% federal income tax bracket (use the Federal Tax Bracket Calculator to find out where you fall).

Most state’s will add only 5-6% (check the State Income Tax Information if you want to be sure).

If you make less than $34,000 and are unmarried, it’s usually safe to assume 20% income tax. If you really want to be sure you’ve got everything covered, you can use 25%. (If you make more than $34,000, I would assume 30% just to be sure.)

Take your monthly income and multiply it by the decimal equivalent of 100%-[your income tax bracket]. If you’re in the 20% tax bracket then you would subtract 100% – 20% = 80%. The decimal equivalent of 80% is 0.80.

*Example:*So, your fictional monthly income is $2,800. Because you make more than $36,000, we’ll assume you’re in the 30% tax bracket.

Your decimal equivalent, therefore, is 0.7 (70%).

$2,800 x 0.7 = **$1,960 a month**

Remember above I told you there was an easy way to check if you’re reconstructions were correct? If your calculated monthly salary equals roughly twice your monthly paycheck (assuming you get paid twice per month), then your calculations are correct. If the reconstructed number is too low or too high, then you know you’ve over-estimated or missed a contribution or a payment that gets taken out before you get your paycheck.

However, if the number is too low, you’re fine. It’s always better to underestimate your income than to over-estimate. If the number is too high, you’d be better of going with the amount on your pay stub.

**Congratulations, you now know how much you earn every month! You’re one step closer to having a budget. **

For the next step, stay tuned to the Budgeting Basics page I set up to archive all of this useful information.

And, of course, if you have any questions, or just can’t seem to get it to work for you, don’t hesitate to contact me. I’ll be happy to help.