Difference Between Similar Terms and Objects

Difference Between Personal Income and Personal Disposable Income

People work hard to earn a living either through employment, business activities as well as other money-generating activities. Personal income and personal disposable income are some of the terms used in reference to incomes. While the difference may seem insignificant, the two are used by economists to gauge the performance of an economy. 

What does Personal Income mean?

This is the total earnings generated by an individual from investments, salaries, dividends, bonuses, pensions, social benefits and other ventures over a given period. Other sources of personal income include profit-sharing from business ventures, rent received from property ownership and distributions received from investments. Often referred to as gross income, it is calculated before the deduction of taxes charged. 

Personal income largely affects consumer consumption which in turn drives the economy. It tends to fall in times of economic recessions and rise during economic expansions. Also, economic growth in a country or specific region leads to an increase in personal income for the peoples in those regions. 

What does Personal Disposable Income mean?

This is the amount of revenue or funds a person has after taxes have been paid. This also amounts to money that people can spend on their needs and save. As such, it is used to closely gauge the economic performance of an economy. 

Economists use economic indicators and statistical measures derived from personal disposable Including:

Personal savings rates- This is the percentage of disposable income that is channelled to retirement or savings

  • Discretionary income- This is disposable income less all payments for necessities such as rent, food, transport and health insurance. 
  • Marginal propensity to save- This is the percentage of each additional revenue that is saved
  • Marginal propensity to consume- This is the percentage of each additional revenue that is used immediately

Similarities between Personal Income and Personal Disposable Income

  • Both are used by economists to gauge consumer spending, saving and borrowing

Differences between Personal Income and Personal Disposable Income

Definition

Personal income refers to the total earnings generated by an individual from investments, salaries, dividends, bonuses, pensions, social benefits and other ventures over a given period. On the other hand, personal disposable income refers to the amount of revenue or funds a person has after taxes have been paid. 

Taxes

While personal income is subject to taxes, personal disposable income is not subject to taxes. 

Personal Income vs. Personal Disposable Income: Comparison Table

Summary of Personal Income vs. Personal Disposable Income

Personal income refers to the total earnings generated by an individual from investments, salaries, dividends, bonuses, pensions, social benefits and other ventures over a given period. On the other hand, personal disposable income refers to the amount of revenue or funds a person has after taxes have been paid. Both are used by economists to gauge the performance of an economy. 

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References :


[0]Pinto J & Piros C. Economics for Investment Decision Makers: Micro, Macro, and International Economics. John Wiley & Sons, 2013. https://books.google.co.ke/books?id=Xa6HzTAJutsC&pg=PA216&dq=Difference+Between+Personal+Income+and+Personal+Disposable&hl=en&sa=X&ved=2ahUKEwid7rKJ2bHuAhUEAWMBHVytA9wQ6AEwAHoECAYQAg#v=onepage&q=Difference%20Between%20Personal%20Income%20and%20Personal%20Disposable&f=false

[1]Henry D. Jacoby. Foundations of Macroeconomics: Its Theory and Policy. Transaction Publishers, 2008. https://books.google.co.ke/books?id=bosth1nYxGEC&pg=PA123&dq=Difference+Between+Personal+Income+and+Personal+Disposable&hl=en&sa=X&ved=2ahUKEwid7rKJ2bHuAhUEAWMBHVytA9wQ6AEwAXoECAMQAg#v=onepage&q=Difference%20Between%20Personal%20Income%20and%20Personal%20Disposable&f=false

[2]United States. Bureau of Economic Analysis. State Personal Income. the New York Public Library, 2016. https://books.google.co.ke/books?id=YXC5RpMQ7EAC&pg=PA5&dq=Difference+Between+Personal+Income+and+Personal+Disposable&hl=en&sa=X&ved=2ahUKEwid7rKJ2bHuAhUEAWMBHVytA9wQ6AEwAnoECAAQAg#v=onepage&q=Difference%20Between%20Personal%20Income%20and%20Personal%20Disposable&f=false

[3]Image credit: https://commons.wikimedia.org/wiki/File:U.S._Household_Debt_Relative_to_Disposable_Income_and_GDP.png

[4]Image credit: https://commons.wikimedia.org/wiki/File:Personal_Income.svg

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