Author Topic: Do you track gross or net income?  (Read 1742 times)

jefffyluber

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Do you track gross or net income?
« on: December 15, 2016, 08:19:31 AM »
On your tracking sheet/monthly tabulations, do you track gross or net income? I currently use a custom excel spreadsheet, which has been awesome.  I currently just track my net income, then track my expenses.

I feel like my spreadsheet isn't truly reflecting how much I am saving because it has no mention of my 401k/IRA which are directly deposited. This makes my savings rate not look as good.

Do people track their gross income and then track their fed/state taxes as well as their 401k/rIRA?

Any tips or thoughts? Thanks in advance.

dandarc

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Re: Do you track gross or net income?
« Reply #1 on: December 15, 2016, 08:25:17 AM »
Both.

The generally accepted way to calculate savings rate is:

(Withheld Savings (401K, IRA if it comes out of your check, HSA) + Other Savings) / (Net Pay + Withheld Savings (401K, IRA if it comes out of your check, HSA))

If you count employer match, be sure to add it on to both your numerator and your denominator.

Savings rate isn't the end-all magic number, but when you're looking at it, you don't want to be overly optimistic or pessimistic in your calculation.

nereo

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Re: Do you track gross or net income?
« Reply #2 on: December 15, 2016, 08:27:01 AM »
I'm baffled why you wouldn't include contributions to your 401(k)/IRA in your "awesome" custom excel spreadsheet. For most this winds up being the largest chunk of our investments.

My advice: track what you save and try to maximize it.  Stop worrying about whether to look at savings rate as a function of gross/net/pretax/postax.... what ultimately matters is the absolute amount you save.  Minimize taxes. Don't miss the forest looking at the trees.
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Stash Engineer

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Re: Do you track gross or net income?
« Reply #3 on: December 15, 2016, 08:31:12 AM »
Yes, I track both.  You want to see and count your pre-tax investments and also improvements to your taxes (by reducing taxable income).
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jefffyluber

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Re: Do you track gross or net income?
« Reply #4 on: December 15, 2016, 08:33:16 AM »
I'm baffled why you wouldn't include contributions to your 401(k)/IRA in your "awesome" custom excel spreadsheet. For most this winds up being the largest chunk of our investments.

My advice: track what you save and try to maximize it.  Stop worrying about whether to look at savings rate as a function of gross/net/pretax/postax.... what ultimately matters is the absolute amount you save.  Minimize taxes. Don't miss the forest looking at the trees.

Sorry if it came across that I was super worried about the savings rate. I was just curious how other people did it and what people do to see their whole picture of their finances (including savings). Thanks for the advice.

jefffyluber

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Re: Do you track gross or net income?
« Reply #5 on: December 15, 2016, 08:33:50 AM »
Yes, I track both.  You want to see and count your pre-tax investments and also improvements to your taxes (by reducing taxable income).

Thanks much!

wenchsenior

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Re: Do you track gross or net income?
« Reply #6 on: December 15, 2016, 08:42:22 AM »
I track everything in and out of the household the same way...in an excel spreadsheet. I track with categories by column, and days of the month by row, totals at the bottom. I have expense columns, then income columns, and then a set of columns that tracks how much I invest every month (401ks, IRAs, and taxable accounts). Why not just add a set of columns?

Playing with Fire UK

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Re: Do you track gross or net income?
« Reply #7 on: December 15, 2016, 08:56:01 AM »
(Savings including pension contributions) / Net Income

Look and weep at my 80% savings rate.

No seriously, if you want to think about it more check out TFS's post which is British and nerdy and good.

I actually use: (savings in pension*(1-tax) + savings out of pension)/ (expenses + savings in pension*(1-tax) + savings out of pension).

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Re: Do you track gross or net income?
« Reply #8 on: December 15, 2016, 11:52:19 AM »
I'm baffled why you wouldn't include contributions to your 401(k)/IRA in your "awesome" custom excel spreadsheet. For most this winds up being the largest chunk of our investments.

My advice: track what you save and try to maximize it.  Stop worrying about whether to look at savings rate as a function of gross/net/pretax/postax.... what ultimately matters is the absolute amount you save.  Minimize taxes. Don't miss the forest looking at the trees.

Sorry if it came across that I was super worried about the savings rate. I was just curious how other people did it and what people do to see their whole picture of their finances (including savings). Thanks for the advice.

@jeffyluber, don't be sorry. The only way you came across was as someone who had a honest question. Thank you for asking, I wanted to read the helpful responses you received myself. Obviously, not all responses you received are helpful or productive, lol

Spork

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Re: Do you track gross or net income?
« Reply #9 on: December 15, 2016, 12:03:34 PM »

My opinion is: you properly identify income (all of it) and expenses (all of them) and you're doing the right thing.  In other words, I think if you're looking at your paycheck and thinking "gross or net" ... you're likely already not tracking everything.  This is sort of the same issue as when people say "do you track your principle as savings?"  The real issue here is that everything in and out of your books should be classified properly as asset/liability/income/expense.... and then everything magically takes care of itself.

Savings rate then becomes simple:
(income - expense ) / income
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nereo

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Re: Do you track gross or net income?
« Reply #10 on: December 15, 2016, 12:04:14 PM »
I'm baffled why you wouldn't include contributions to your 401(k)/IRA in your "awesome" custom excel spreadsheet. For most this winds up being the largest chunk of our investments.

My advice: track what you save and try to maximize it.  Stop worrying about whether to look at savings rate as a function of gross/net/pretax/postax.... what ultimately matters is the absolute amount you save.  Minimize taxes. Don't miss the forest looking at the trees.

Sorry if it came across that I was super worried about the savings rate. I was just curious how other people did it and what people do to see their whole picture of their finances (including savings). Thanks for the advice.

@jeffyluber, don't be sorry. The only way you came across was as someone who had a honest question. Thank you for asking, I wanted to read the helpful responses you received myself. Obviously, not all responses you received are helpful or productive, lol

After re-reading my response I see it may seem more pithy than intended. It wasn't meant to be cut-down in any way.  I just didn't understand why you wouldn't consider what's probably a large percentage of your total investments.
No offense intended.
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nobody123

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Re: Do you track gross or net income?
« Reply #11 on: December 15, 2016, 12:10:46 PM »
I don't include my 401k or HSA (I'm treating it as a retirement vehicle) and just worry about take home pay in my excel sheet.  I treat them like the taxes and premiums that come out of my paycheck that I have no control over, so I don't bother adding that noise to my budget tracking.  I'm never going to not contribute to them on any given month unless I lose my job.

Retire-Canada

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Re: Do you track gross or net income?
« Reply #12 on: December 15, 2016, 12:33:26 PM »
On your tracking sheet/monthly tabulations, do you track gross or net income?
Any tips or thoughts? Thanks in advance.

I don't track my gross income or my net income. I don't track any of it. I just track my monthly savings.

SnackDog

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Re: Do you track gross or net income?
« Reply #13 on: December 15, 2016, 12:55:12 PM »
Just minimize your spending, maximize your income and the rest will take care of itself.
The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. –Thomas T. Munger

neo von retorch

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Re: Do you track gross or net income?
« Reply #14 on: December 15, 2016, 01:49:29 PM »
I track my net worth. Income affects that. Expenses affect that. (Asset value changes affect that - I do track investment value changes and dividends quarterly, but personally do not bother updating real estate values from their original appraised value. In my area, real estate values are relatively slow to change.)

Recently, I was curious about savings rate, so I made a spreadsheet each for gross and net. The number for net is about 10% higher. I don't really want to track the deductions from paychecks because both my wife and I get paid weekly, and the numbers often change by a few cents up and down each week. In the future, I'll just use net for calculations. But in the end, when I'm thinking about financial independence, I'm trying to find a point at which (expenses - passive income) + (remaining debts) <= (invested assets). So in addition to tracking net worth, I track invested assets.

Altons Bobs

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Re: Do you track gross or net income?
« Reply #15 on: December 15, 2016, 02:29:32 PM »
I'm a simple person, I don't track income, I track expenses, and how much I put into savings. I don't track net worth, I don't care about savings rate since I know I'm hitting my target. 

Zikoris

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Re: Do you track gross or net income?
« Reply #16 on: December 16, 2016, 10:50:28 AM »
Net income, but I do include pre-tax RRSP contributions for savings rate calculations. I also reverse the formula for simplicity, and calculate my spending rate rather than savings rate. I also calculate it annually rather than monthly, to account for large monthly fluctuations due to travel spending. My formula looks like this:

(all spending for the year) / (net income + pre-tax RRSP contributions for the year) = spending rate. This year that's around 30%, leaving me with 70% savings rate.
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Indio

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Re: Do you track gross or net income?
« Reply #17 on: December 16, 2016, 12:27:40 PM »
I use net and gross because some years I put more into FSA, dependent care and now, HSA than other years depending on upcoming predictable expenses, like braces. This impacts taxes too so it's helpful to have both sets of numbers.

trollwithamustache

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Re: Do you track gross or net income?
« Reply #18 on: December 16, 2016, 12:49:59 PM »
On a monthly basis I just net income vs expenses. But at the beginning of the year I'll set a budget for the year, make any FSA/HSA/401k/IRA e ct.  type decisions and ensure the deductions for tax and 401k are correct etc. If something changes during the year then maybe I have to revisit this but after the big stuff is set, monthly I'm managing expenses that are controllable against net income.

Net vs Gross matters for tax planning if you have a lot of 1099 income or later if your investment accounts are producing taxable/tax inefficient income, and for calculating your savings %. 

I do track gross income and modified adjusted gross from the tax return on an annual basis. But I don't know how much that really means. When I started freelancing on the side I had extra income, but then could write off a lot of expenses like a new computer for me... and a couple years later another new computer when the old one was too old for "professional use" and/or the oldest needed one for school... its a tax efficient way to do things but what does that do to my % savings? am I saving a higher % on the W-2 main job income? or am I saving less because I am trying to move up as many costs against the business while I have that income?   I stopped worrying about savings % after wasting a whole bunch of time coming up with different spreadsheets that all seemed reasonable.

Playing with Fire UK

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Re: Do you track gross or net income?
« Reply #19 on: December 16, 2016, 02:05:01 PM »
I like tracking a variant of savings rate because I can see the progress that I'm making against FIRE. If I'm increasing income or savings but my spending is creeping up then I'm not doing as well as I thought. I also like to track work related expenses separately so that I can take those out of my annual expenses in FIRE.

I have a lot of spreadsheets.

v8rx7guy

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Re: Do you track gross or net income?
« Reply #20 on: December 16, 2016, 02:47:26 PM »
I track net income, but I set up a separate tab to my spreadsheet which calculates my paycheck so that I can analyze how changing my Allowances, HSA or 401K contributions, etc. will affect my net income.

Playing with Fire UK

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Re: Do you track gross or net income?
« Reply #21 on: December 16, 2016, 03:10:29 PM »
I track net income, but I set up a separate tab to my spreadsheet which calculates my paycheck so that I can analyze how changing my Allowances, HSA or 401K contributions, etc. will affect my net income.

I should add this tab to my spreadsheets.