• Gary Grewal

What is Gross Monthly Income, How to Calculate It, & Increase It!



Our friends over at Wallet Squirrel were kind enough to allow us to write up a guest blog post on the topic of Gross Monthly Income. Check it out! With all of the tax terms being tossed around, it can feel intimidating to figure out what exactly is your Gross Monthly Income. What is it and why does it matter? As you'll see, we break down what it is, why it's important, how it impacts you, and how to increase it. Our goal with this post is to guide our readers on grasping this topic to make more informed decisions about their income from all sources. As always, keep in mind this blog is for information purposes only and should not be taken as advice!


This post originally appeared on Wallet Squirrel on 8/26/21 and has been republished with permission.


Gross Monthly Income is basically the total compensation you receive for a given month before all the open hands of life take their share (looking at you IRS).


Gross Monthly Income Is All Your Income Before Expenses & Taxes


Let’s say you have a full-time job. When they presented your salary of $60,000 a year, that was yearly gross income, or $5,000 monthly gross income ($60,000 / 12 = $5,000). You never actually receive $60,000 in a year. Your employer takes all the taxes out for you before you receive any of that money.


You have Federal Income Tax taken out, potentially state and local taxes, as well as FICA, Medicare, and other deductions, such as 401k deductions and deductions for your medical plan. After all of those deductions, you get your NET income, which is money that actually hits your bank account. If you are hourly, to calculate your gross monthly income, you first need to multiply your hourly rate by how many hours you work a week, then multiply that by 52 (number of weeks a year) and divide by 12 (months per year).

Gross Monthly Income = All The Money You Make You Make In A Month Net Income = Gross Monthly Income – Taxes – Expenses

If you are self-employed or have side income, Gross Monthly Income would basically be everything you earned, in total “revenue.” I add revenue in parentheses because if you have a side hustle or business where you sell stuff, Gross Monthly Income would be AFTER you deduct the cost of those items or inventory (Officially called Cost of Goods Sold or COGS).


Lots of Little Taxes To Be Aware Of


But wait! That $5,000 is unlikely to be your total Gross Monthly Income. If you have a savings account, you might have 1099 interest income (even in this paltry rate environment). You might also have a brokerage account where you had capital gains and side income from your part-time Lyft driving. To add to that, let’s say you got a $2,000 bonus at work and $1,000 for referring someone to your apartment building in the same month. Those items would then be added to the pool that is your Gross Income and would be subject to taxes and other deductions.


For example, this year, I opened an account at Schwab and CitiBank because they offered account opening bonuses. This resulted in me receiving $1,200, which would be added to my gross monthly income for the year. I will most likely get a 1099 early next year, which requires me to claim the income on my taxes.


People Use Gross Monthly Income To Sound Impressive


So, when you hear about people trying to increase their monthly income by working on a side hustle such as walking dogs or consulting work, they are trying to increase their Gross Monthly Income.


Think of it as a bucket that all of your sources of income flow into, and then holes in them that are taxes, deductions, spending, etc. Someone may make a gross monthly income of $20,000 in a month and brag on social media, but if their expenses are $19,900, they only made $100.


Many times, especially in our social media and the comparison-obsessed world, we look at a YouTuber, blogger, or “side-hustler” earning something crazy like $20,000 per month, and you think to yourself, “Wow! That’s like 5 times more than I make” Well, that $20,000 is their Gross Monthly Income. Then they pay a host of fees, share profits with their platform, and are on the hook for their own expenses, such as buying their own technology and professional subscriptions. Further, freelancers are typically responsible for paying their own health, dental, disability, vision, and other insurance fully out of pocket. I have a friend who owns her own graphic design business, and she pays $1,150 per month for health insurance, and that’s with a $5,000 deductible!


This isn’t to dissuade you from working for yourself or having a side hustle; it just shows you that the numbers people throw out as their gross monthly income can be misleading, especially when you are an employee comparing yourself against them. The grass isn’t always greener on the other side; there is always more to the story.


Reduce Taxes to Increase Gross Monthly Income


While it’s generally true the more you earn, the more you will owe in taxes, there are steps you can take to increase your take-home or net pay. Gross Monthly Income can be increased in ways mentioned above, such as working a second job part-time, having a passive income stream, receiving dividend income, etc. If you can maximize retirement savings accounts available to you, depending on your age and income limits (401k, deductible IRA, SEP IRA if you are self-employed), this will reduce your taxable income. If you can contribute to an HSA, FSA, or other pre-tax employer benefits, this will also help. For business owners, the options are even more copious. To reduce their taxable income, they can deduct mileage on their car, cell phone, internet, and many other costs.


Employers Calculate Taxes For You, Side Hustles Do Not


The other thing to keep in mind is to stop yourself from mental accounting. If you earn a total of $5,000 per month from your job, those taxes and deductions have already been taken out by your employer.


On the other hand, money paid by side hustles is gross. So if you earned $5,000 from side hustles, don’t think, “Woohoo! I can take that vacation trip or pay off the $5,000 credit card bill with this money”. Because that $5,000 is before taxes. You need to set some of that money aside for the IRS for the inevitable year-end taxes. You don’t want to get in trouble or end up in collections with the IRS, which will open a whole can of worms that will be hard to close.


Suppose you do not properly save enough of your gross monthly income for taxes. Luckily, the IRS does have a payment plan that you might qualify for but don’t rely on it. The best thing to do is to use a booking service like Quicken to help you set a portion of self-employment income, or even better, work with a CPA to help you structure a plan that not only keeps you on top of your taxes but maximizes your tax-efficiency as well.


Wrap-Up, Gross Monthly Income is All The Money You Received In The Month Before Taxes & Expenses


So, now you know how to calculate your gross monthly income and how to increase it. Don’t let the thought that the more money you earn, the more taxes you have to dissuade you. True, it can kick you into a higher tax bracket. However, you need to take a look at what deductions and credits you can take advantage of.


Lastly, I am not a tax professional, so make sure you consult with your own tax person about your personal income situation.

Gary Grewal

Gary Grewal is a Certified Financial Planner, entrepreneur, and car aficionado. He writes at financialfives.com and is the author of Financial Fives: The Top 325 Ways to Save, Earn, and Thrive to Retire Before 65.

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