Understanding your income sources is one of the starting points towards creating a budget. Your annual gross income represents your total income before any taxes or other deductions. "Take-home pay" represents your net income, specifically your income minus taxes, credits, and deductions. Some common income sources include:
Wages, salaries, and tips
This is money you earn at your job. For some people, this may be roughly the same amount on a regular basis. Others may have income varying from paycheck to paycheck. If your income varies often, consider what is your average paycheck, along with the lowest and highest paycheck received over the past year.
Interest and dividends
Interest income can be earned from your bank accounts, such as savings accounts and certificates of deposit (CDs). Dividends may be received if you hold stock in a company.
Social Security and other benefits
Social Security benefits include the amount paid to retirees who contributed during their working years, as well as amounts paid to surviving spouses and disabled workers.
Miscellaneous income
Other income may include unemployment compensation, gifts received, or money taken from an IRA, 401(k), or pension.
Understanding your different income sources is a great step toward understanding your budget. Additionally, understanding income changes - and how widely it varies - can help towards planning ahead for the dips and increases.
