Personal Finance / Unit 1: Earning Income
1.2 Gross Pay vs. Net Pay
Notes
Gross pay is your total earnings before anything is taken out. Net pay (take-home pay) is what you actually receive after deductions.
- $\text{Net pay} = \text{Gross pay} - \text{Deductions}$.
- Deductions include taxes and may include health insurance, retirement contributions and union dues.
- Budget with net pay, because that is the money you can spend.
- Example: gross pay $800, deductions $180. Net pay $= 800 - 180 = 620$, so $620.
- Deductions as a share of gross: $\displaystyle \frac{180}{800} = 22.5\%$.
Practice
A worker earns $900 gross and has $210 in deductions. What is the net pay?
$900 - 210 = 690$.
Which amount should you use when planning a monthly budget?
You can only spend what actually reaches you after deductions.
Gross pay is $1,000 and net pay is $780. What percent of gross pay went to deductions?
Deductions are $1000 - 780 = 220$, and $\displaystyle \frac{220}{1000} = 22\%$.
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