One of the mental traps high paid professionals fall into is a false perception of how much they make. For example, a pharmacist who signs with a company for an annual salary of $100k starts to envision things he/she can afford making $100k. $50,000 for a car? Why not? That’s only 6 months salary, I’ll have that thing paid off in no time! $400,000 for a house? Why not? We can have that paid off in 4 years! Easy math, right?

Unfortunately, the coursework in pharmacy school never covers the definitions of “Disposable Income” and “Discretionary Income” with students. Upon graduation, pharmacists get that first big paycheck only to realize they are lucky to have 60-65% of their wages actually deposited into their bank account. After the pre-tax retirement contributions (if they make any), taxes (state/federal income and payroll taxes), and employer-sponsored insurance expenses, a person is left with this disposable income that is about 2/3 of the money he/she thought she had. Disposable income typically refers to a “post tax” amount, but the definition is often debated.

Now that you are mildly depressed with losing 1/3 of wages right off the bat, the costs of “basic expenses” (such as housing, transportation, and food) take out another chunk leaving you with your discretionary income. This is the income that is left over for iPhones, Tom Ford sunglasses, that family trip to Hawaii, and hopefully additional savings/investments.

Once you have the basic understanding of income, you can start to budget and plan according to your personal goals. Do you want to invest more in your “basic expenses” like a luxury car or big house in a nice neighborhood? Do you want to have more money available to pay down debt or go on vacations? Do you mind eating PB&J’s a few extra nights a week or do you like eating out?

As you apply evaluate any job opportunities and consider salary, remember this important distinction between top line revenue (ie: Wages) and your net income (discretionary income after all of your taxes and basic expenses have been subtracted). Building wealth is not just about how much money you make but about how much money you keep.