Income is one of the important aspect in our life.
Incomes are mostly monthly or people earn their money on daily and weekly basis. Our financial condition defines us in the society. Everything around us is based on money. Is it scary for you?
Our needs need money like food, clothing, shelter and water.
In short our financial situation has to be very strong in order to survive in a society.
We really need to ask a question to ourselves, which is are we saving any money for our future? Or do we have enough money to keep pace with the society?
These questions are based on the ground realities and are applicable to every person, but for that we need to understand a difference. The difference is between net income and gross income?
In this article you will find
- What does net and gross income mean?
- What’s the different between net vs gross income
- How to calculate net worth
Net vs. Gross Income
While dealing with the money related issues one has to be very careful about certain things.
There are some terms in the line of business which some of the non-business people do not know and would love to know because this is important.
These terms are net income and Gross income? We have often faced the question of our incomes and also people does not hesitate when they ask about the net and gross income of someone.
But we hesitate sometime because we do not really know the difference and even if we know we just get so confused that we just ignore the question.
- Net income is the income which is received by a person or a company after all the deduction of taxes and other expenditures.
Whereas, gross income is the income which represents the wholeness of something. It refers to the whole amount of money. The money in gross income is untouched and totally virgin. It is pure and the taxes have never been deducted from this income. This income can be yearly depending on certain things.
- When we value between the two incomes, then the gross income wins. Gross income is always higher than the net income. This means that the value of the gross income would always be high. The reason for this factor is that gross income is the money without taxes. It has not reduction in it, which is why it is higher than the other income.
- However, the other important thing to know about net income is that the net income depends on the gross income. We cannot get the net income if the taxes are not deducted from the gross income. Net income is really important for us. Individuals need net income which they can spend on themselves and their families.
- Gross income is like a base income for everyone either for individual or for businessmen. Everything is based on the gross income. Gross income is the income which is earned by working the whole year on their business. This is why gross income has a very significant value in the lives of the businessmen. This is the value which their business earns after several tries.
- In addition to this. Net and gross both the incomes play a major part in the business life of businessmen. Both of the incomes help them in knowing their business income. They can use the net income and gross income as an analysis for their business income.
It lets them know the value of their business and how much they are earning per year and how much they should earn every year. This is very helpful for the business empire who want to earn more and more. The both of the incomes help them in knowing that.
- Expenses can be very tough on anyone. An individual and businessmen, they both can never know the expenses when they do not know the income. If they would never know the income, they would never be able to estimate the expenses.
They can sometimes exceed the limit which is not good, of course, or they can arrange for very little amount which is again not suitable in any case. So, if you are a businessman and want to know the exact amount of your expenses and wants to know how much you need to spend on them then start calculating your gross and net income.
So, these are some major points which you can refer to while talking about net income versus gross income.
Meaning of Gross and Net income
Every one of us has heard the term gross income and net income and some of us use these terms daily in our life. We also use these terms in business, especially when we are dealing with financial situations.
There is a very slight difference between the two terms, but it is worth knowing. So, here is the difference. Gross income indicates the wholeness of something. It does not include any kind of deduction like taxes or other important deductions. Whereas the net income is the total income after all the subtractions.
The amount you get when all the taxes are deducted and all the other expenses are subtracted from the total income of yours. The income which is left after the subtraction is your net income. For some people, it is very difficult to understand this idea, but honestly, there is not a big problem in understanding these terms. The only thing you have to keep in mind is the difference.
Keep it in your mind by remembering the word gross and take it as a whole of everything. Your business expenditures and other finances are included when you count your net and gross income. Other than this difference there is no such issue which can bother you.
Net and gross worth calculators
There are calculators available online for calculating the net and gross income. You can use those calculators and get the results. All the calculators available online are easy to use and secure.
Net versus Gross margin
Another important concept which is misunderstood by the people who are not related to business or accounts or economics at all. Just like we need to understand the difference between the net income and the gross income, we have to understand the difference between net margin and gross margin as well.
Percentage of anything is important as it let us know certain details in a very compact way. The margins suggest percentage of the income of business in total. The percentage which we get is after all the expenses and subtractions. It is equally important to understand this concept and not just shooting the arrows in the air.
Since, the profit on net income depends on the gross income so it is important to understand the gross margin first.
So what does these margin actually mean?
Gross margin has the capability to change your dollars into profit. How does it happen?
Well, this is really easy if you have some knowledge of business or if you are affiliated with some business companies. When we say that it can convert your dollars into profit we actually mean it because it compares the gross profit which is the income which you have earned over a good period of time.
Since, it is assumed that you would have earned a lot of money so you can easily compare it with the gross profits and earn profit for your company. This is very helpful for you. On the other hand net margin is different from the gross margin. Net margin is the final ratio. The net margin is derived from the income statement.
Certain calculations are done and the final ratio is taken out after all the subtractions and deductions of taxes, expenses and etc. the final amount which is the result is your net margin.
Importance of margins
When we talk about these margins we should not forget to mention the importance of these terms. Both of the margins are very significant for the growth of our business. Gross margin is really helpful in keeping the companies healthy in finance. Every company has to achieve the bottom line results which are not possible without the help of gross margin and profit.
However, net margin is equally important as it works side by side with the gross margin. Companies have to be very strong when it comes to the net margin. Net margin helps the companies in gaining a lot of profit which ultimately leads them in making more money than ever. The higher the net profit is, the more money will be made by companies. We also have to keep in mind the expenses of companies.
High expenses can lead us to somewhere we do not want to go. This is the reason we have to be keep a check and balance on everything which is related to our company. There are negative margins as well. Negative margin means that we are calling the destructions to us. So, in order to have a positive net margin, we should have to be very carefully about the expenditures and other things as well.
However, if we want to know where we stand in the ratio of net and gross margin then we can calculate it easily. There is no rocket science in it. What you need to do to find out the gross profit margin is that first subtract the cost of things which are sold from the company’s income. You will have a number in results. The second step is to divide the number by revenue. By the end of this procedure, you will have a number which will be your gross margin.
Net margin calculation
Without making it difficult.
Net profit margin is easy to find out. Pick the gross profit and subtract all the expenses which are still in operation and then divide it by revenue. The results will be your net profit margin.
How to calculate gross monthly income?
One of the vital question which is being asked many times is the question about how to calculate the gross monthly income. The answer to this question is fairly easy.
Anyone who earns can calculate the gross amount if he is aware of the formulas and their usage. Having said that there are people who earn in different ways. There are people who are being paid monthly and there are people who earn on hourly basis. The more hours they work the more they will earn. Considering this fact there are two ways of calculating. The first method is for those who earn of monthly basis. The gross income means the amount which is with any deductions and subtractions of taxes and expanses. So, the formula is simple. Take out the total amount of money which you receive annually. Once you have calculated your annual salary, you will divide this amount by 12.
Your gross income per month is equal to your annual salary, which is divided by 12. The resulting numbers will be your gross income.
However, the formula is different for the people who work on hourly basis. This can be very tricky. So, first of all multiply your hourly money by the hours you work on every week. After that divide the number by 52. The resulting numbers will be your annual salary. Now you can divide it by 12 and the answer will be your gross income.
How to calculate the net income monthly?
Calculating net income is as important as calculating the gross income. The formulas for calculating net income is quite simple. Once when you know the formulas, calculating will be so easy for you. For the people who are paid on monthly basis the formula is easy. What they need to do is that take their monthly amount and multiply it by 12. The resulting number will be the net amount.
For people who earn on weekly basis. The formula is different. They have to use their number of their take home pay and then later multiply it by 52. The resulting numbers will be their net income. There are many people who are not just paid on the monthly or weekly basis. There are a lot of people who earn on bi weekly or mid weekly. The formula is different for them. They cannot use the formulas for the people of monthly or weekly paid and calculate their net income. They have to follow other formulas which are especially made for them while considering the mode of earning.
Those who earn on bi weekly basis should use the amount and multiply it by 26. The number which they will get after calculations will be their net income of the month. The procedure is the same for the people who earn on the basis of mid-week. But they have to multiply the amount by 24. This way they will get the desired amount which will be the net amount of the month for them.
Why you should calculate Net and Monthly income?
Calculations are really important when it comes to finances. Our financial condition is really important for us. Financial conditions define us. We need to know how much strong we are in our financial health. People who are in business have to be well aware of their monthly and net income. They have to know how much profit they are making and how much more they need to make. For individuals it is really important as they have to make their budget plans based on their monthly income. Budgeting is important because you make a whole plan for the entire month considering everything you need. Calculations will help you know how much money you have and how much of it you can spend on yourself and on your home. All your financial decisions are based on the calculations of your monthly income and the net number.
There are deductions which are applied on the paycheck you get. These are taxes and debts if you are in debt. The estimated money will be deducted from your paycheck and you get the remaining money for sure. The remaining money will be your actually money on which you have to spend the whole month. So, take the decisions wisely. Calculate it and make plans for your budget. Do not exceed the limit if you do not know the formulas. Check the formulas and then make a plan and work on it. This way you can keep the money save in a little amount and can spend on your budget too.