Disposable Income


DEFINITION of 'Disposable Income'

The amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.

Calculated as:

Disposable Income

Also known as "disposable personal income" (DPI).


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BREAKING DOWN 'Disposable Income'

For example, let's assume your household personal income includes $100,000 from salaries and you are paying at the 35% tax rate. Your household's disposable income would then be $65,000 ($100,000 - $35,000). Economists use DPI to gauge households' rate of savings and spending.

In 2005, the average disposable personal income dipped into negative territory for the first time since 1933. This means that in 2005, Americans were spending their entire DPI and then tapping into debt for further spending.

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