When we do speak about personal finances, Net income concept means residual, remaining income an individual has and which is available for spending. Usually it is all income a person received minus all expenses and taxes.
Let’s assume:
- monthly total income of a person is $5,000
- monthly expenses, including living costs, mortgage payments, taxes and so on, are $3,500
This is the amount a person can spend or save.
While making Net Income calculation and planning future level of money to be available for spending on non-regular expenses or available for saving, it is essential to take into account all possible deductions (taxes, regular and non-regular expenses, retirement contributions, mortgage and so on).
Some people are used to using some non-expensive personal budgeting applications or financial software, which can help in such calculations and also personal finance planning
Also, in case a person has several sources of income, for Net Income calculation, all inflows from those sources has to be summed up. In additional to employment income, other sources of income can be:
- rental income
- investment income
- personal business income (like freelancing), and
- similar
Also it is essential to remembers that taxes calculation might also be quite complicated, as different types of income can have different taxation regime (also depending on the tax legislation of the country where person pays taxes) and different rules for deductibility of expenses for tax calculation can be applies, as well as some tax incentives might also be present.
Therefore it is essential not to forget those aspects while planning your future Net Income level.