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Difference between Personal Income and Personal Disposable Income
Working hard at a job, running a business, or engaging in a variety of other activities is only one way that people make money to pay for the basics of life. In the context of money, several terms are used interchangeably. Income and disposable income are two examples of such terms. Despite the apparent lack of distinction, economists employ both measures to evaluate the success of various economies.
What is Personal Income?
The term "personal income" is used to describe a person's total earnings for a certain time period, regardless of the specific sources of those earnings (which may include, but are not limited to, wages, dividends, bonuses, pensions, and social benefits). The rent one receives from one's properties, the dividends one receives on their investments, and the owner's share of the earnings from one's enterprises are all supplementary ways in which a person might bring in money. The term "gross income" refers to the amount of money produced before various expenses and taxes are deducted.
Consumer spending, the fundamental driver of economic development, is highly sensitive to the amount of individual income. Trends show a decline when the economy is weak and an increase when it's booming. Moreover, a rise in the per capita income of the people residing in a country or area is another indicator of economic progress.
What is Personal Disposable Income?
After paying all required taxes, this is the sum of money or revenue left over. This means people will have more disposable income and will be able to put away more money for the future. Therefore, it is used to accurately evaluate an economy's performance. Economists use economic indicators and statistical measures based on discretionary income.
Personal disposable income is the share of disposable income that goes towards long−term savings and retirement plans.
Discretionary income − This is what's left over after paying fixed costs including housing, food, transportation, and healthcare.
Marginal propensity to save −Marginal propensity to save − That's the percentage of extra money made from each sale that was kept.
Marginal propensity to consume − This is the fraction of new funds that go straight to improving operations.
Differences: Personal Income and Personal Disposable Income
Economists use both to track changes in consumer spending, savings, and debt. The following table highlights how Personal Income is different from Personal Disposal Income −
| Characteristics | Personal Income | Personal Disposable Income |
|---|---|---|
| Definition | A person's "personal income" is the money they bring in during a certain time period from all of their jobs, investments, dividends, bonuses, pensions, and other sources of revenue and business. | A person's "disposable income" is their total income after all deductions have been made, including those for mandatory spendings such as housing and food. |
| Taxes | A person's earnings are subject to taxation. | There are no deductions from earned income that an individual must pay. |
Conclusion
A person's "personal income" is the money they bring in during a certain period from all of their jobs, investments, dividends, bonuses, pensions, and other revenue sources and business sources. The term "personal disposable income" instead refers to the amount of money or revenue left over after taxes have been paid. Economists use both to assess a country's financial health.
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