If you get paid every two weeks, calculating your monthly income can be tricky. You can fake it by just adding the two paychecks together, but you short yourself a couple of paychecks by doing that. That difference can be the difference between qualifying or not qualifying for a loan or a lease. So here’s how to calculate monthly income from biweekly paycheck.
Getting the math right on this is important. Adding two paychecks together is fine for a quick estimate, but it’s very easy to under-state your monthly income by 28 percent by making two simple mistakes. As you can imagine, that 28 percent can be more than enough to keep you from getting the loan or the lease you want. To do the math right, make sure you have your pay stub or pay statement handy, not just your bank statement.
Why you can’t just add two paychecks together
There are about four weeks in a month, but the keyword there is about. There are 12 months in a year and 52 weeks in a year. So if you make $1,500 per paycheck and get paid biweekly, you actually make a little more than $3,000 a month, on average. Some months you make $3,000, but some months you make more. When you fake it by just adding two paychecks together, you leave out almost eight percent of your income.
Since all your income counts when you apply for a lease or apply for a loan, you want to be factoring that in. Those two paychecks you skip can be the difference between the numbers working or not working when they try to decide what you can afford.
You also want to make sure you know whether they’re asking for net or gross income. Net income is your take-home pay, or the money that ends up in your pocket. Gross income is your income before taxes and other deductions. That’s usually an even bigger difference. That’s why I say it’s easy to accidentally understate your income by 28 percent. It happens that’s almost enough to pay your mortgage.
Pre-tax or after tax?
Usually it’s your before-tax income that counts. That’s good, because that number is higher. The bad part is that number isn’t on your paycheck. It’s on the paystub itself.
Look for a line on your paystub or your pay statement that says gross pay. That’s your income before they deduct for taxes, health insurance, union dues, retirement, and whatever else they may deduct for. My pay statement has 10 deductions on it, and some people have even more than that.
You never see that money, but it counts as income. Let yourself get credit for it.
If your application asks for your gross monthly income, that’s what it’s looking for. It’s looking for your income before all of those deductions. If they ask for your net monthly income, or your take-home monthly income, it’s the amount of money that’s actually on your paycheck itself.
If you’re not sure, ask. The difference between your net monthly income and gross monthly income could easily be 20 percent or more. That’s even more likely to be enough to approve you or not.
How to calculate monthly income from biweekly paycheck
So, if you’re asking how to calculate monthly income from biweekly paycheck, you may be asking the wrong question. That’s OK. Here’s how to convert that biweekly income to monthly income so you can get the credit you deserve.
The math to convert biweekly pay to monthly isn’t necessarily hard. But it also might not be obvious. The key is knowing there are 52 weeks in a year and 12 months in a year. If you get paid biweekly, that means you get paid 26 times.
So first, take the amount of your paycheck and multiply that by 26. In our example of $1,500, that works out to $39,000. That means you make $39,000 a year if you make $1,500 every two weeks.
There are 12 months in a year, So divide the total from the previous step by 12. So in this example, it’s 39,000 divided by 12. That works out to $3,250.
Maybe eight percent doesn’t sound like a lot, but that difference isn’t chump change. Back when I was deciding who I’d offer a lease to and who I’d decline, I’d ask questions if someone was within eight percent. But not everyone does. I’ve been turned down for loans I thought I should have been a slam-dunk approval for.
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.