Working out your real take-home pay

Resources · Money basics · 4 min read Starting out

Key points

• Budget with your take-home pay, the amount that lands in your account, not your salary figure.
• Tax, retirement contributions and other deductions come out first.
• Weekly and fortnightly pay don’t convert to monthly by multiplying by four or two.
• Your payslip is the most reliable place to find your numbers.

Gross pay versus take-home pay

Your gross pay is what you earn before anything comes out. It’s the number in the job ad, or on your contract.

Your take-home pay (also called net pay) is what actually turns up in your bank account. That’s the money you can spend, save and pay bills with.

The gap between them can be big. Budgeting with gross pay is one of the most common reasons a budget just doesn’t add up.

What comes out before you’re paid

Names and rules vary by country, so your payslip is the place to check what’s taken out. But the deductions usually fall into a few groups.

First, income tax. In many countries your employer holds back tax from each pay.

Many places also take social contributions, which go toward public pensions and benefits.

Retirement contributions are money you or your employer put into a workplace pension or retirement account. Depending on where you live, the employer’s share may be paid on top of your wage instead of coming out of it.

And then the odds and ends. Health insurance premiums, union fees, student loan repayments, salary sacrifice arrangements, charity donations.

Your payslip lists every one of these. If something looks unfamiliar, your payroll or HR team can explain it.

A worked example

Say someone earns $4,500 a month gross. Their payslip shows:

Their budget starts at $3,405. Not $4,500. These figures are made up for the example, and the same maths works in any currency.

Converting your take-home pay to a monthly figure

Most bills are monthly, so most budgets are too. If you’re paid weekly or fortnightly, convert carefully.

A month is a bit longer than four weeks. There are 52 weeks in a year, but 12 months, so:

• Weekly pay: multiply by 52, then divide by 12.
• Fortnightly (every two weeks): multiply by 26, then divide by 12.
• Twice a month (for example, the 15th and the last day): multiply by 2.
• Monthly: use it as is.

Why multiplying by four or two falls short

Take someone paid $800 a week. Multiply by four and you get $3,200. But $800 × 52 ÷ 12 = $3,466.67 a month on average.

Someone paid $1,000 a fortnight would get $2,000 by doubling. The real average is $1,000 × 26 ÷ 12 = $2,166.67 a month.

So which number do you budget with? That’s your call. You can use the accurate average ($3,466.67 or $2,166.67), so your budget reflects your full income for the year and every dollar is planned from the start. Or you can use the lower figure (four weeks or two fortnights) as your monthly budget, and treat the extra pay periods that turn up a couple of times a year as a bonus for savings, debt or annual bills. That second way builds in a small buffer, which some people like. Both work.

Where to find your real numbers

Start with your payslip. It shows gross pay, each deduction and net pay. Look at several recent ones, because amounts can move around.

Then check your bank account to see what actually landed. This catches anything your payslip doesn’t make clear. An annual tax summary from your tax records can confirm your total for the year.

If your hours or overtime change from pay to pay, look back over your last three to six months and pick a figure toward the lower end. Our article on budgeting with an irregular income goes into this in more detail.

Things that can change your take-home pay

A pay rise or a change in hours will do it. So will starting or stopping a retirement contribution, or starting or finishing a student loan repayment. Changes to tax rules, thresholds or your tax code can shift it. A new benefit or deduction through work can too.

When your take-home pay changes, update your budget that same month. Don’t wait.

Common questions

What is the difference between gross pay and take-home pay?

Gross pay is what you earn before anything comes out. Take-home pay, or net pay, is what actually arrives in your bank account after tax and other deductions.

How do I convert fortnightly pay to monthly?

Multiply by 26, then divide by 12. So $1,000 a fortnight works out to $2,166.67 a month on average.

Why is my take-home pay lower than my salary?

Income tax, social contributions, retirement contributions and other deductions come out first. Your payslip lists each one.

Try it

Once you know your monthly take-home pay, put it into our budget calculator to see what’s left after your costs.

General information only, not financial advice. Your situation is your own.