1 Income and taxation
There are two sides to budgeting – calculating income and forecasting spending.
The income side is usually easier as for many of us it’s what we get from our employer(s) or from government benefits.
Being self-employed or having several sources of income can make budgeting tricky as there are likely to be some uncertainties about how much you will earn in the course of the year ahead, meaning that there will a bit more guesswork in your budget.
When building income into your budget you need to focus on net income. This is the income you actually receive after tax and other deductions are made from your salary (known as your gross income).
If you’re employed, these deductions are made for you and set out in your monthly payslip. If you’re self-employed or a contractor, you’ll need to factor in tax and other deductions yourself or employ an accountant to do it.
But even if these deductions are made for you, it is important that you understand them to ensure that they are correct. So next you’ll look at the two main deductions made from gross incomes – income tax and National Insurance contributions.