Gross Salary Vs. Net Income

Profitability Mindset

Photo by Karolina Grabowska on Pexels.com

I remember my first job right out of school, it was for a tech company, and I felt very grateful to be considered for the role. I had done two interviews, and the third one was the salary negotiation portion. Before going for the interview, I figured what the least livable salary was for me, and I thought to myself that if I got this amount, then I should be ok. Going in, I asked for that amount plus a little more to give some negotiation room. I got what I requested, and I was happy with my contract. Fast-forward to the day I received my first salary ever, I was ready to be excited but lo, and behold the amount paid into my account looked nothing like what was in the contract.

After all, no one had ever taught me about salary negotiation or requesting for what you are worth and not what you need.

What had happened was that I had not accounted for pension (which was mandatory) and taxes correctly. What made it even more heart wrenching was that I had not planned my expenses adequately. I planned based on my current situation, I didn’t account for the expenses of having a job like the cost of transportation, clothing, lunch at the office, housing, and the fact that people will generally stop giving you allowances once you had a job :(. The sadness I felt was overwhelming, and I know that this situation is not specific to me because I have had this same conversation with countless early to career individuals, and the experience is mostly the same. Even more devastating is that I still had not considered all the levers that I should have before entering that negotiation room. It did not hit me until a couple of months later that my situation was direr than I had thought. The lesson I learned at this point is that you negotiate your net salary and not your gross salary. Going into any job interview, I would research what the net will be per month.

While the gross salary mindset was unacceptable, the net salary mindset only ensured that I stayed alive, it did not account for growth or the future; because to grow and secure the future, I should be negotiating my net income.

Whether at a job interview, contract negotiation, or the start of a business, before committing time and energy, one must consider what will remain after taxes, expenses, and other obligations are settled, especially the obligations that arise as a result of the new commitment.  

When I abstract and focus on net income, it is obvious that it is the fuel for growth because (like we mentioned in previous posts) your net income (aka retained earnings) is the only way to increase your equity and by extension your assets.

I know when you are looking for a job or trying to start that new business, it seems like dream city to consider all these other things, and truly this next opportunity may not provide you that bandwidth ( I am a firm believer in whatever your hand finds to do, do it), but it is important to keep net income top of mind so that you do not get comfortable, and you can keep looking for situations that allow you to grow.

How then do I increase and optimize my net income?

This seems like a simple enough question, but it is the difference between a life of penury and a life of financial freedom. In the following posts, we will discuss the ways to increase net income using revenue management strategies and expense budgeting, optimization, and planning.

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Share your first job experience and horror stories. Leave a comment below, and please like my post to show support.

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