Net Income (Personal)

Net income is what arrives in your bank account. It is calculated by starting with gross income and subtracting deductions such as income tax, social security or national insurance contributions, and any pension contributions or other amounts taken directly from pay.

For example, a person with a gross salary of 4,500 a month might have 750 deducted for income tax, 300 for social security and 225 for a workplace pension. Their net income is 3,225.

Net income is the right figure to use for budgeting, because it is the money you can actually spend or save. Planning a budget from gross income is a common mistake that leads to overspending.

The term also has a separate meaning in business. In accounting, net income is a company's profit after all expenses, interest and taxes, often called the bottom line. That meaning is covered in its own entry under Accounting & Financial Statements.