Income Categories
Income categories represent all the money you and your partner bring in each month. Setting them up correctly is the foundation of your budget - after all, you can only allocate what you actually earn!
What are Income Categories?
Income categories track money coming in to your household:
- Salary and wages
- Business or freelance income
- Side hustles
- Investment income
- Rental income
- Any other money you receive
These categories tell Balance how much total income you have to allocate across your expenses and savings.
Why Income Categories Matter
Your income categories serve several important purposes:
1. Total Income Calculation
Balance calculates your total monthly income by adding all income categories:
Your Salary: $4,500
Partner's Salary: $3,200
Side Business: $500
Total Income: $8,200
2. Budget Allocation Target
Your total income is your allocation goal - aim to allocate 100% across expenses and savings:
Total Income: $8,200
Goal: Allocate $8,200 (100%)
3. Progress Tracking
Balance shows you what percentage of income you’ve allocated:
Total Income: $8,200
Expenses Budgeted: $7,500
Allocated: 91%
Remaining: $700
Types of Income Categories
Salary & Wages
Regular paychecks from employment.
How to Budget:
- Use net income (after taxes and deductions)
- Calculate monthly amount from pay frequency
Weekly Pay:
Weekly paycheck: $1,000
Monthly: $1,000 × 4.33 = $4,330
Bi-Weekly Pay (every 2 weeks):
Bi-weekly paycheck: $2,000
Monthly: $2,000 × 2.17 = $4,340
Semi-Monthly (twice per month):
Semi-monthly paycheck: $2,000
Monthly: $2,000 × 2 = $4,000
Monthly Pay:
Just use the monthly amount: $4,500
Example Categories:
- Your Salary: $4,500
- Partner’s Salary: $3,200
Business Income
Self-employment, freelancing, contracting.
How to Budget:
- Use conservative estimate (variable income)
- Account for irregular payment timing
- Remember: No taxes withheld!
Conservative Approach:
Last 6 months: $3k, $5k, $2k, $4k, $6k, $3k
Average: $3,833
Lowest: $2,000
Budget: $3,000 (between lowest and average)
Tax Considerations:
Business Income: $3,000
Set aside 30% for taxes: -$900
Net budgetable: $2,100
Create two categories:
- Business Income: $3,000
- Tax Savings: $900 (expense category for setting aside)
Example Categories:
- Freelance Design: $2,500
- Consulting: $1,500
- Etsy Shop: $800
Side Hustle Income
Part-time gigs, side projects, secondary income.
How to Budget:
- Only budget if consistent
- Use 3-month average
- Don’t count one-time windfalls
Example:
Uber driving:
- Month 1: $400
- Month 2: $350
- Month 3: $420
Average: $390
Budget: $400
Example Categories:
- Rideshare Driving: $400
- Dog Walking: $250
- Tutoring: $300
- Reselling: $200
Investment Income
Dividends, interest, capital gains, rental income.
Dividends & Interest:
Annual dividends: $1,200
Monthly budget: $1,200 ÷ 12 = $100
Rental Income:
Monthly rent collected: $1,500
Expenses (maintenance, taxes, etc.): -$400
Net income: $1,100
Capital Gains:
- Generally don’t budget these (irregular)
- Or use very conservative annual estimate ÷ 12
Example Categories:
- Dividend Income: $100
- Interest Income: $25
- Rental Property Income: $1,100
Other Income
Any other regular income sources.
Tax Refund:
- Don’t budget as monthly income
- Treat as one-time windfall when received
- Or divide by 12 if you want to smooth it out
Child Support/Alimony:
Monthly payment: $800
Budget exactly: $800
Social Security/Disability:
Monthly benefit: $1,200
Budget exactly: $1,200
Gifts:
- Don’t budget these (irregular and unpredictable)
- Treat as extra income when received
Example Categories:
- Child Support: $800
- Social Security: $1,200
- Pension: $2,500
Setting Up Income Categories
For New Budgets
Step 1: List All Income Sources
Write down every source of money:
- Your job
- Partner’s job
- Side work
- Passive income
- Regular gifts or support
Step 2: Calculate Monthly Amounts
For each source, determine the monthly amount:
- Regular pay: Use conversion formulas
- Variable income: Use conservative estimate
- Annual income: Divide by 12
Step 3: Create Categories
- Go to Budget > Manage
- Tap Add Category
- Toggle to Income
- Enter name and amount
- Repeat for each income source
- Save Changes
For Existing Budgets
Adding New Income:
- Got a raise? Update existing salary category
- Started side hustle? Create new income category
- New investment income? Add new category
Removing Income:
- Lost job? Reduce or remove that income category
- Stopped side hustle? Delete that category
- Adjust expenses to match new lower income
How Much to Budget
The Golden Rule: Net Income Only
Always budget your net (take-home) pay, not gross.
Example:
Gross Salary: $6,000
- Federal Tax: $900
- State Tax: $300
- Social Security: $372
- Medicare: $87
- Health Insurance: $200
- 401k: $600
Net (Take-Home): $3,541
Budget: $3,541 ← Use this number
Why?
- You never see the withheld money
- You can’t spend it
- Budget only what actually hits your account
Handling Irregular Income
If income varies significantly month-to-month:
Option 1: Conservative Baseline
Budget your minimum expected income
When you earn more, allocate extra to savings or debt
Option 2: Average
Calculate 6-month average
Budget this amount
Build emergency fund to smooth low months
Option 3: Month-to-Month
Budget each month based on that month's expected income
Most work, but most accurate for variable income
Recommendation: Start with Option 1 (conservative). It’s safest.
Two-Income Households
Combine or Separate?
Combined Approach:
Total Household Income: $7,500
- Your Salary: $4,500
- Partner's Salary: $3,000
Both incomes go into one budget, all expenses shared.
Separate Approach:
Your Income: $4,500
Your Expenses: $3,000
Your Savings: $1,500
Partner's Income: $3,000
Partner's Expenses: $2,000
Partner's Savings: $1,000
Each person has their own income and expenses in Balance.
Recommendation: Combined approach for couples sharing finances.
Working with Income Categories
Viewing Total Income
On the Manage Budget page, you’ll see:
Allocation Summary:
85% Allocated
$7,200/$8,500
$1,300 left to allocate
The denominator ($8,500) is your total income from all income categories.
When Income Changes
Got a Raise:
- Update salary category with new amount
- Decide how to allocate extra income:
- Increase savings
- Increase expense categories
- Add new goal categories
- Keep some increase for quality of life
Example:
Old Salary: $4,000
New Salary: $4,400 (+$400)
Allocate the $400:
- Emergency Fund: +$200
- Retirement: +$100
- Dining Out: +$50
- Entertainment: +$50
Lost Income:
- Reduce or remove that income category
- Reduce expenses to match new lower income
- Prioritize essential categories
- Cut discretionary spending first
Example:
Old Income: $8,000
New Income: $5,000 (lost one income)
Reduction needed: $3,000
Cut from:
- Entertainment: $300 → $100 (-$200)
- Dining Out: $400 → $150 (-$250)
- Clothing: $200 → $50 (-$150)
- Savings: $1,000 → $200 (-$800)
- Groceries: $700 → $550 (-$150)
- Subscriptions: $100 → $50 (-$50)
- Personal Spending: $400 → $0 (-$400)
- Other cuts: -$1,000
Total reduction: -$3,000 ✓
Income vs. Expense Categories
Understanding the difference is crucial:
Income Categories
- Money coming in
- Increases total budget
- Creates money to allocate
- Toggle set to “Income”
- Shows in allocation denominator
Expense Categories
- Money going out (including savings)
- Uses up budget
- Consumes income allocation
- Toggle set to “Expense” (default)
- Shows in allocation numerator
Common Confusion: Is Savings Income or Expense?
Savings is an EXPENSE category.
Think of it as:
- You’re “paying yourself”
- You’re “spending” money on your future
- It’s an expense to your current budget
- It uses up income like any other category
Income:
- Salary: $5,000
Expenses:
- Rent: $1,500
- Groceries: $600
- Savings: $1,000 ← Expense category!
- Other: $1,900
Total Expenses: $5,000
Income Categories for Couples
Individual Salaries
Create separate categories for each person:
Income Categories:
- Your Salary: $4,500
- Partner's Salary: $3,500
Total: $8,000
Benefits:
- Track who earns what
- See impact if one income changes
- Clear for financial planning
Combined Income
Or combine into one:
Income Categories:
- Combined Salaries: $8,000
Benefits:
- Simpler
- More “we’re a team” mentality
- Less comparison
Choice is yours! Most couples prefer separate for clarity.
Side Hustle Attribution
If one partner has side income:
Income Categories:
- Your Salary: $4,500
- Partner's Salary: $3,500
- Your Freelancing: $800
- Partner's Etsy Shop: $400
Total: $9,200
Clear attribution helps track individual contributions and tax planning.
Troubleshooting
“My allocation is over 100%”
Your expenses exceed your income. Solutions:
- Reduce expense categories to match income
- Increase income (get raise, add side hustle)
- Review budget realistically - are you overspending?
“I get paid irregularly”
Solution: Use conservative monthly estimate based on lowest typical month. Build emergency fund to smooth variations.
“I don’t know my net income”
Solution:
- Look at last month’s bank deposits
- See what actually hit your account
- Use that as your income amount
“Should I include one-time income?”
Generally no.
- Tax refund: One-time windfall
- Bonus: Irregular, don’t budget
- Gift: Nice surprise, not regular income
Exception: Annual bonus you reliably get:
Annual bonus: $6,000
Add to income: $6,000 ÷ 12 = $500/month
“What about income I reinvest?”
If income never hits your bank (like reinvested dividends):
- Don’t include in budget
- You can’t spend it
- Budget only spendable income
Best Practices
1. Be Conservative with Variable Income
Better to underestimate and have extra than overestimate and fall short.
2. Use Net Income Only
Don’t budget money that’s withheld for taxes and benefits. You can’t spend it.
3. Update When Changes Occur
Keep income categories current:
- Got a raise? Update immediately
- Lost job? Update immediately
- Side hustle ended? Remove category
4. Separate Salary from Bonus
Don’t combine:
Instead of:
- Salary: $5,000 (includes $500 estimated bonus)
Do:
- Salary: $4,500
- Bonus: $500 (if reliable and regular)
5. Review Quarterly
Every 3 months:
- Are income amounts still accurate?
- Any new income sources?
- Any income sources ended?
Next Steps
Now that you understand income categories:
- Expense Categories - Learn about expense category types
- Setting Category Budgets - Master budget amounts
- Managing Your Budget - Budget management tools
- Budget Progress Tracking - Monitor spending
Need help? Contact our support team - we’re here to assist!