Gross pay vs. take-home pay
Gross pay is the number on your offer letter — before anything comes out. Take-home pay (net pay) is what actually lands in your account after taxes, benefits, and deductions. It's almost always meaningfully less — and it's the only number that matters for budgeting.
What actually gets taken out
- Federal income tax — withheld based on your W-4
- State income tax — varies by state, some have none
- Social Security tax — 6.2% of wages up to the annual limit
- Medicare tax — 1.45% of all wages
- Health insurance premiums — your share of employer coverage
- 401(k) or retirement contributions — pre-tax, if elected
- Other benefits — dental, vision, FSA, HSA
In real numbers
That's a $1,250/month gap from the gross monthly figure of $4,167. Budget off the wrong number and the plan is broken before it starts.
Always budget from what hits your bank account — not what your employer pays you. The gap is real, significant, and permanent.
Finding your real number
Simplest way: look at your last paycheck or bank deposit. That's your number. If you're paid bi-weekly, that's your per-paycheck amount — enter it with your frequency and let BudgetDummy handle the conversion.
If you're self-employed
No automatic withholding — taxes are paid quarterly or at year-end. Your "take-home" is essentially your gross income, minus roughly 25-30% you should be setting aside for taxes before budgeting the rest. Same principle: budget from the money that's actually yours to spend.
The long game
Your budget needs to live in the real number — not the one on the offer letter. Everything else you build depends on getting this one right first.