Disposable income is the income that is left over after an individual has paid all personal income taxes. This is a very important measure to determine not only an individual's overall economic health but the health of society as a whole. It is one of the primary measures of personal wealth but it is not the only measure that can be used.
It is important to understand that disposable income is not the same as discretionary income. Discretionary income is the income left over after taxes and other routine expenses. Thus, the value of income that is disposable is, nearly always, higher than discretionary income, but may not truly reflect the costs a person has to deal with routinely.
Depending on the situation, some agencies may use the terms disposable income and discretionary income interchangeably. As such, it is important for the person filling out any forms to understand what information is being sought. This is key to giving the most accurate information possible and avoiding claims of fraud, especially if the form is an official form from the government. If there is any question about what is being asked for, it is always best to ask questions rather than making any assumptions.
In general, at least in the United States, disposable income is usually 10 to 15 percent of a person's total income. The rest usually comes out in a variety of taxes. Of course, this depends on the state, in which you live, your income level and amount of withholdings. In other countries, it can also be determined by looking at the average tax rate and may be more or less than the figures quoted for the United States.
During an economic slowdown, disposable income may decrease. However, this is not due to the fact that taxes increase, but rather total income is likely to decrease during this time. This can lead to a harder time meeting existing obligations and a hesitancy to create new ones.
In some countries, it may be possible that gross income and disposable income are the same thing. This would be the case in countries where there is no personal income tax. This could be because the country has no personal income tax levy or because the person does not earn enough money for income taxes to be assessed.
