Effective gross income
Effective gross income means how much money you have after you earn it, but before you spend it on things like rent, utilities and other bills. Imagine you have a lemonade stand and you sell 10 cups of lemonade for $1 each. Your gross income would be $10 because that is how much money people gave you for the lemonade.
Now, let's say you had to spend $2 on lemons, sugar and cups to make the lemonade. Your net income would be $8 because that is how much money you made after you subtracted your expenses. However, your effective gross income would be $10 because that is how much money you earned before paying for the things you needed to make your product.
Effective gross income is important because it tells you how much money you have to pay for all the things you need to keep your lemonade stand running. If your rent and utilities cost $3, you would have $7 left over. This is why it's important to know how much you are making before you spend money on things like supplies and rent.
Now, let's say you had to spend $2 on lemons, sugar and cups to make the lemonade. Your net income would be $8 because that is how much money you made after you subtracted your expenses. However, your effective gross income would be $10 because that is how much money you earned before paying for the things you needed to make your product.
Effective gross income is important because it tells you how much money you have to pay for all the things you need to keep your lemonade stand running. If your rent and utilities cost $3, you would have $7 left over. This is why it's important to know how much you are making before you spend money on things like supplies and rent.
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