Disposable personal income is the amount of money that you receive in your paycheck. This amount is net of any income taxes, payroll taxes, health care deductions, retirement savings deductions, and other items taken out of your paycheck like cafeteria plans. This is your take home pay that you can choose to spend or save. Economists look at this metric to gauge the health of an economy. As income levels rise, families are able to afford more goods than the necessities in life and can purchase products like TVs, video games, and snowmobiles. Rising incomes also allows families to save more money in case of a rainy day.
In a nutshell :
- Disposable income is net income. It's the amount left over after taxes.
- Discretionary income is the amount of net income remaining after all necessities are covered.
- Economists monitor these numbers at a macro level to see how consumers save, spend, and borrow.
- Shelter, food, and debts are usually paid using disposable income.
- The government uses disposable income when deciding how much of a paycheck to seize for money owed in back taxes or child support.