A Quick and Simple Guide to Calculate Your Take Home Pay



Your take-home pay is a critical number to know when building a financial plan. It tells you how much money you clear on each paycheck after taxes and deductions. If you’re a salaried employee, who gets paid every two weeks, you might be wondering how to calculate your monthly take-home pay.


To calculate your monthly take-home pay, use a recent paystub to find your net-pay, which is equal to your gross pay minus any deductions such as taxes, health insurance premiums, or contributions to a workplace retirement plan. Then take your net-pay and multiply it by 26 and then divide that number by 12 to arrive at your monthly take-home pay.


In this post, I’ll provide a step by step approach to calculate your monthly take-home pay with examples and why knowing your take-home pay is vital to building your financial plan.


How to calculate your monthly take-home pay as a salaried employee

Salaried employees can calculate their monthly take-home pay using a simple 4-step process.

  1. Grab your most recent paystub.

  2. Identify your net pay per paycheck.

  3. Convert your net pay per check into monthly take-home pay


Step 1: Grab your most recent paystub.


If you are a salaried employee or receive an hourly wage with consistent hours, calculating your take-home pay is simple. Grab your most recent paystub. It should look something like this.

Your net pay is how much you take home each paycheck after taxes and other deductions come off your gross pay


The above paystub is an example of what a salaried employee making $65,000 per year might look like.


Step 2: Identify your net pay per paycheck.


You’ll notice three totals at the bottom of this paystub.

  1. Gross pay is calculated by taking your annual salary and dividing it by the number of pay periods per year.

  2. Deductions such as taxes, medical deductions, and employee pension contributions and social security deductions.

  3. Net pay which is equal to gross pay minus deductions.

In this example, the gross pay is $2,500 ($65,000 ÷ 26), and $824 of taxes and deductions are taken off that paystub, leaving a net pay of $1,676 each paycheck as highlighted in the yellow box.


Step 3: Turn your net pay per check into monthly take-home pay.

  • Most salaried employees get paid every two weeks.

  • That means you receive 26 paychecks per year.

  • Therefore your monthly take-home pay= net pay per check x 26 divided by 12

  • Using the above paystub as an example, monthly take-home pay= ($1,676 x 26) divided by 12, which is equal to $3,631.

  • The monthly take-home pay for this hypothetical person making a $65,000 per year is $3,631.

If you were paid weekly, you would follow the same process, except instead of having 26 pay periods, you would have 52.


Remember this simple formula: Monthly take-home pay= (Net pay per paycheck x number of pay periods per year) ÷ 12.


Using monthly take-home pay to calculate your savings rate

The most important variable in personal finance is your savings rate. Your savings rate tells you how much of your take-home pay you are saving each month relative to your take-home pay.


Your personal savings rate= Monthly savings ÷ monthly take-home pay.


What is considered savings?

Many people get confused about what should be included as part of your calculating their personal savings rate.


Any action you take with your money to increase your net worth is considered savings. That includes money set aside in a savings account, used to invest or to pay down the principal on outstanding debt.


Yes, you should consider money to pay down debt as part of your savings rate, but only the amount that goes towards principal. If you allocated $100 towards your debt and $60 went towards principal and $40 went to service interest, only the $60 would be considered savings when calculating your personal savings rate.


Some people would disagree with me and say savings should only include money that is invested or set aside in cash.


I would ask those people to put themselves in the shoes of someone who is struggling to pay off debt. We should be encouraging people to make the right decision to get their debt under control and including principal payments as part of calculating a personal savings rate recognizes those efforts.


Additionally, paying down a loan or a credit card is likely going to fetch a far better return than sticking your money in a savings account earning practically no interest.


An example of how to calculate your personal savings rate

Sticking with the example above, let’s say you make $65,000 per year and have a monthly take-home pay of $3,631.

Additionally, we’ll assume you make allocate the following to saving each month.

  • $363 towards retirement.

  • $100 towards an emergency fund.

  • $100 towards debt ($60 to the principal, $40 to interest.)

Total savings= $523.


Savings rate= 14.4% ($523 ÷ $3,631.)


Using your monthly take-home pay to create a budget

You will also need to know your monthly take-home pay to create a personal budget.

Remember, we can’t spend our gross pay, but only our take-home pay because that is the amount that gets deposited into our bank account each month.


Since most of us budget our spendings and savings on a monthly basis, we need to know our monthly take-home pay to decide how we allocate our budget.


If your monthly take-home pay is $3,631 you know you can’t create a budget that allocates more than $3,631 on a monthly basis.


Your monthly take-home pay is a simple and important calculation

Your net pay is equal to your gross pay minus any deductions taken off your paycheck. To calculate your monthly take-home pay, simply multiply your net-pay times the number of pay periods per year and divide by 12.


You need to know your monthly take-home pay in order to calculate your personal savings rate which is equal to your monthly savings divided by your monthly take-home pay.


Finally, you need to know your monthly take-home pay in order to create a budget, because budgets are set up on a monthly basis and we can only spend our take-home pay and not our gross pay.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions


©2019 by Making of a Millionaire Inc.