How is Real Income Used
What is your “real income”? This is hard to define unless you put some thought into it. I define “real income” as any money that hits your accounts. This could be from a paycheck or a profit from a company you own that was paid and deposited into your personal checking account. I include any money that is deposited or contributed to into my portfolio (not including dividends received from my portfolio).
Simple Example
Georgia College Paycheck — $1000.00 (deposited into checking account)
Southern Fabric Paycheck — $500.00 (deposited into checking account)
Georgia College Retirement Contribution — $1500.00 (deposited into retirement account)
Southern Fabric Retirement Contribution — $1000.00 (deposited into retirement account)
Real Income = $4000.00
Complex Example
Georgia College Paycheck — $1000.00 (deposited into checking account)
Southern Fabric Paycheck — $500.00 (deposited into checking account)
Georgia College Retirement — $500 HSA Contribution; $500 employee contribution; $500 employer contribution
Southern Fabric Retirement — $700 employee contribution; $300 employer contribution
Real Income = $4000.00
Some tips about Real Income. Do not include your tax payments, but include your tax refund. Open your paycheck every month and record the amount that hit your account, this is called “net”, not “gross”. Your gross is your top line, before your deductions and taxes.
Why is Real Income important?
I think the most important thing about real income is that it is used to calculate your savings rate or investment rate. Folks also use this information to see how much money they are really using. If you have a real income of $100,000 a year but you spend $100,000 a year and do not save anything it is very hard to start making better financial decisions.