Why should you consider your net income instead of gross income for budgeting?

Considering net income instead of gross income for budgeting is important because net income represents the amount of money you actually take home after all taxes and deductions have been accounted for. This figure directly reflects what you can spend on your monthly expenses, savings, and discretionary spending.

Budgeting is about managing your available financial resources effectively, which is why net income is essential. Since gross income does not account for necessary deductions such as taxes, Social Security contributions, or retirement plan contributions, relying on it could lead to unrealistic budgeting—where you may plan for expenses based on a higher income than what you will actually receive.

Using net income allows for accurate financial planning and helps ensure that you are living within your means, leading to better financial health and stability.