2. DETERMINE YOUR GROSS MONTHLY INCOME

This is the good part - you get to see how much moolah you're pulling down each month. So put your reading glasses on (halfway down your nose to be authentic), and grab a calculator - you're ready to become a geek! Whoops… we meant to say "accountant." (Same diff.)

What you'll have to do is carefully figure out (as exactly as possible) how much money you have rolling in each month. To do this, think of EVERY single way you make money. Here's a list of possibilities to think about:
  • Net paycheck (meaning, "after taxes") from full-time job
  • Self-employment income
  • Part-time income
  • Freelance income
  • Overtime wages
  • Social Security benefits
  • Disability or Worker's Compensation payments
  • Allowance from parents
  • Birthday checks from grandma (hooray!)
  • Child support or alimony you receive
  • Coins tossed at you when playing ukulele on street (weirdo)
  • Bonuses
  • Interest from savings

Whew! Obviously not all of the above will apply to you. But figure out what does, and write down how much you get from that category.

Once you have that done, you have to start eliminating the less stable sources. Already? Yep. Short honeymoon, eh? Even though the world is in desperate need of more public ukulele playing, you have to figure out guaranteed income.

Here's what professionals say you should focus on:

  • Paycheck from full-time job - some experts say to use your gross (pre-tax) salary, but if your deductions are pretty much the same each week, use the net (post-tax) - it makes the calculation a lot simpler).
  • Part-time income
  • Self-employment income
  • Allowance from parents
  • Social security, pension, and child support/alimony
  • Interest from savings

That means no bonuses and no overtime salary, even if you're pretty sure you'll get them (you never know). But if you do get those, think of them as presents. Yipee.

Here's an example: suppose "Imelda" makes $36,000 net per year:

  • Full-time salary: $3000 (net)
  • Allowance: $150
  • Interest from savings account: $50
  • Bonus: $100 (total yearly bonus divided by twelve)
  • Ukulele donations: $10

  • Total Net Monthly Income = $3200 (everything but the bonus and ukulele money)

Got it? $3200 to play with… how will Imelda end up? Will she join the ranks of ukulele playing or the astute money-managers? Ooo, the suspense… We suspect that she'll blow it all on shoes.