This week’s topic: Determining your Net Spendable Income
I’ll be honest. It took me a few tries to wrap my head around “NSI” but it really isn’t that complicated. The condensed version is this: NSI is the money left after tithing and taxes. See, simple.
You need to know how much money you have in order to know how much you can spend. Did you catch that? The further along on this journey you get you’ll see that you are only going to spend what you make. Nothing more. You can’t spend what you don’t have and you don’t have a credit card. Repeat after me “I will not use my credit card.” There. Good. We’ll cover that more in another Finance Friday. Your goal now is to decide exactly how much money you’re working with.
To find your NSI grab your pay stub and follow along. How much did your employer pay you? This is typically the highest number on the stub. The gross amount. Take your gross amount times 10%. This is your tithe.
Now, there is a section on your pay stub that lists your taxes and other deductions from your check. These other items could include 401k, health insurance, healthy saving account plans and mine includes the monthly charge for my cell phone.
There are two ways to approach your NSI. Some say that tithe and taxes are the only thing you take off of your gross pay amount. This might be the financ-y way to do it but it’s not how I do it. I take the net income on my check, the take home amount as some call it, subtract the tithe and what I have left if my NSI. Why do I do it that way? Since my employer does take out my 401k, insurance and other items I feel they are non negotiable items.
Here’s an example:
Gross pay: $1,000.00
Tithe: $1000.00 x 10% – $100.00
Taxes, misc: $250.00
$1,000.00 – 100.00 – 250.00 = $650.00.
The NSI is $650.00.
To create a monthly budget you’ll want to know your monthly NSI.
- You can calculate your yearly NSI with your W2 and then divide by 52.
- If you are paid weekly take your NSI times 52 for a yearly amount
- If you are paid bi-weekly take your NSI times 26 for a yearly amount
- If you are an hourly employee base your NSI on a pay period with little to no over time. Overtime is extra income that might not be guaranteed.
Until Next Time,