Net
Age 12+The amount you actually keep after taxes and deductions come out. The "take-home" money.
At a glance
Net is what you actually keep after taxes and deductions are subtracted from gross. Net is the number that lands in your account, the number you can actually spend or save, and the number every responsible budget should be built on. The difference between gross and net for a US employee is usually 20-30%, sometimes more.
Example sentence
"Your gross pay was $100, but your net pay was $82 after taxes."
Why this matters for kids
Net pay is what people actually live on, and the difference between using gross or net to plan a budget is usually the difference between solvent and not. Adults who anchor their lifestyle to gross — "I make $80,000, I can afford X" — consistently overspend because the actual landing-in-the-account number is closer to $58,000 after taxes and standard deductions. A kid who learns by sixteen that the headline number on a paystub is not the spending number heads off years of "where did my money go" confusion. The literacy compounds: net is also the number that matters when comparing job offers (a $90K job with great benefits often nets more than a $100K job with bad benefits), evaluating whether you can afford a mortgage, deciding how aggressive to be with retirement savings. Anchoring to net is the foundational adult money habit; teaching it before the first paycheck arrives is one of the highest-leverage parenting moves on this topic.
How to teach it
When budgeting with a teen — for a summer job, a side gig, an internship — always budget off net. "You'll earn $1,000 this summer gross, but after taxes you'll keep about $850 net. $850 is what you can actually budget." Walk through the math: federal income tax (varies by bracket), Social Security (6.2% up to a cap), Medicare (1.45%), state income tax (varies, some states zero). For most teen summer earners the take-home is 80-90% of gross because their income is below most withholding thresholds. For older teens with real W-2 jobs, walk through their first paystub line by line. For dependents who get a refund at tax time, explain what that refund actually is — overpaid taxes coming back, not free money. Filing taxes (and seeing a refund or a bill) is itself one of the best gross-vs-net teaching tools.
Common misconceptions
- Net is always 80% of gross. It depends on income, state, deductions, and benefit elections. The 20-30% gap is a rule of thumb, not a guarantee.
- Tax refunds are free money. They're your own money returned to you because you overpaid. Optimising withholding is more useful than getting a big refund.
- You can plan based on gross if you "remember" net is smaller. You can't — the math drift catches you. Always budget off net.
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