What’s the difference between gross and disposable income?
When you’re trying to get a handle on your finances, it’s easy to get confused by the terms flying around, especially when it comes to your income. But what do the terms ‘gross income’, ‘net income’ and ‘disposable income’ actually mean, and more importantly, which one tells you how much you actually have to spend?
This guide breaks down the difference between gross and disposable income, as well as how gross income vs net income is calculated in the UK. We’ll use everyday examples to show how each figure affects your budget, and what to keep in mind when planning your finances.
What is gross income?
Gross income is your total income before anything is taken out. That includes tax, National Insurance contributions, and any other deductions like student loan repayments or pension contributions.
For example, if your salary is £30,000 per year, then your gross income is £30,000 – even though you don’t take home that full amount.
If you’re self-employed, your gross income is the total revenue you make before subtracting your business expenses.
What is net income?
Net income is the amount you actually receive in your bank account. In other words, it’s your gross income minus any deductions. In the UK, this usually includes:
- Income tax
- National Insurance contributions
- Pension contributions
- Student loan repayments (if applicable)
Using the same example: if your gross income is £30,000, your net income after tax and National Insurance might be closer to £24,000, depending on your circumstances. This is sometimes referred to as your ‘take-home pay’.
What is disposable income?
Disposable income is what’s left after you’ve paid your essential living costs, like rent or mortgage payments, utility bills, food, council tax, and transport.
It’s the money you have to spend or save once all the essentials are covered.
Let’s look at an example:
- Gross income: £30,000 per year
- Net income: £24,000 per year
- Monthly net income: £2,000
- Essential monthly expenses (housing, bills, food): £1,500
- Disposable income: £500 per month
It’s easy to see how someone might earn a decent salary on paper, but still have very little left over once all the basics are paid.
This is why understanding the difference between gross and disposable income is so important – because your gross salary doesn’t reflect what you can actually spend. For help calculating your disposable income, check out our disposable income calculator.
Why gross vs disposable income matters
Knowing your disposable income can help you make smarter financial decisions. It shows you what you really have available to:
- Save
- Spend on non-essentials
- Pay off debts.
If your disposable income is low (or even negative), it could be a sign that your outgoings are too high or that you need to rework your budget. It might also explain why, even though you’re earning a full-time wage, things still feel tight by the end of the month.
When it comes to your gross income vs your net income, some UK lenders may assess this during the application process – but you need to focus on disposable income to understand what you can realistically afford.
How to calculate your disposable income
Start with your net income, then subtract your essential living costs. Here’s a quick way to work it out:
- Look at your monthly take-home pay (net income)
- Add up your fixed essentials: rent or mortgage, council tax, utilities, food, transport, childcare
- Subtract those from your net income
What’s left is your disposable income.
This can change month to month. For example, your energy bill may go up in winter.
What if your disposable income isn’t enough?
If you’ve done the maths and your disposable income doesn’t stretch far enough, or you’re falling behind on payments, it’s important to remember that you’re not alone. With rising living costs, more people are finding their take-home pay doesn’t cover everything it used to.
If debts are eating into your essentials, it might be time to get professional advice. At MoneyPlus, we offer confidential, non-judgmental support to help you get back on track.
Depending on your situation, we may be able to help with solutions such as:
- A Debt Management Plan (DMP) – where you make affordable monthly payments to cover your unsecured debts
- An Individual Voluntary Arrangement (IVA) – a legally binding agreement that can reduce how much you repay over time
- Help understanding priority and non-priority debts
- Exploring different types of debt and what action to take
Your next steps
Understanding your gross income vs net income is a great start, but it’s your disposable income that tells the real story. It’s what you have left after tax, bills, and basics, and it’s the figure that truly matters when it comes to budgeting or dealing with debt.
If you’re finding it hard to keep your head above water each month, don’t wait until things spiral. Knowing where you stand financially is the first step – and you don’t have to figure it all out on your own.
If you’re worried about how much money you actually have to spend, or feel like your debts are taking over, you can visit MoneyHelper for impartial advice. Alternatively, you can contact us to speak to an adviser or find a solution online. We’ll help you understand your income, look at your options, and support you in finding a way forward that works for you.
