The Pitfalls of Living Gross-ly

One of the quickest ways that you can get yourself into debt is by always thinking in gross, rather than net. 

What does this mean?


Money Pig

Well, it means budgeting your money by taking your yearly income and dividing it by 12, instead of taking the amount of money you make after taxes, insurance premiums, and retirement contributions have been taken out and budgeting based on that number instead. 

Sadly, the rent you pay, the groceries you buy, or anything else you purchase does not have taxes taken out of them at the point-of-sale (in fact, it’s just the opposite in some cases because of sales taxes).  A $100 pair of shoes is $100 plus sales tax, but your $3000/month (gross) paycheck will probably somewhere around $2000.  So instead of spending 3.3% of your monthly income on that pair of shoes, you’re actually spending 5%!  What if you had a $600/month apartment?  Instead of spending 20% of your monthly income on your place to live, you’re actually spending 30%!  That’s pretty disheartening when you think about it.

The important thing, though, is that if you think about this ahead of time, you’ll increase your chances of being prepared and thereby decreasing your chances of digging yourself into debt. 

MoneySmarts wants to help by providing you with the opportunity to estimate your monthly pay.  If you download the Paycheck/Budget Calculator, you’ll be able to fill out the appropriate boxes that will give you an estimate as to how much money you’ll make each month (we’ve embedded a link to the NACE Salary Calculator so you can get an estimate of your starting salary).  From there, you’ll be able to go to the second tab in the Excel sheet and play around with a monthly budget so that you can see how far your money will actually go. 

One thing, though…if you have student loans, it might be a good idea to not even consider them a part of your monthly budget and instead pay them off first and then start your budget with however much money you have leftover.

So give it a shot…play around with the calculator and see what you think.  If you have any questions, or if you have an idea as to how we can make the calculator better, please let us know: