Net Income

Net income is that figure that is derived from taking the gross or total income of an individual or business and subtracting from it the costs and the expenses associated with living or operating the business. Often this figure is referred to as the "bottom line."

In a business example the store's gross income would be all the revenues garnered from sales in a given month. When the cost of the store's inventory and operating expenses are subtracted from that figure the result is the net income.

For an individual net income would be the amount of "take home" pay after such items as Social Security and withholding are deducted from their salary.

A common mistake of individuals who find themselves in debt is taking their gross income as the amount they are able to spend when in reality it is net income that represents the true degree of spending potential.

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