Wednesday, September 28, 2016

Basic salary, gross salary and net salary

When you start working, you are likely confused when people ask you about your salary.

You do not know whether you want to answer based on basic salary, gross salary or net salary.

The amount between all the three salary types is huge.

Let us assume that your basic salary is $1,000.

This is the base salary without addition of allowance, commission, overtime or other amount.

If your overtime is $400 for that month, and you have an additional uniform allowance of $100, transport allowance of $100, and commission of $100, you have to add all these to get the gross salary.

The gross salary means the basic salary plus all the additions or deductions.

In this case, your gross salary is $1,700.

That is not the money you see in the bank, because taxation and other mandatory deductions take a huge chunk from your gross salary.

In the end, your net salary is just $1,300.

If you can save 20% of your net salary, and invest to get a return of 5% or more, you can start to think of retirement after 20 years of working. 

That is considered good, since you are likely to be in your 40s, and you still can work to make up for any shortfall in your projection of retirement cost.

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