What Is Personal Income?
Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.
- Personal income is the amount of money collectively received by the inhabitants of a country.
- Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses.
- Personal income is generally subject to taxation.
Understanding Personal Income
The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income. In most jurisdictions, personal income, also called gross income, is subject to taxation above a certain base amount.
Personal income has a significant effect on consumer consumption. As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis.
In the United States, the Bureau of Economic Analysis (BEA) tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and sole proprietorships. This allows the agency to make analyses about how earning trends are changing.
Personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens.
Personal Income vs. Disposable Personal Income
Disposable personal income (DPI) refers to the amount of money that a population has left after taxes have been paid. It differs from personal income in that it takes taxes into account.
Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest.
Only income taxes are removed from the personal income figure when calculating disposable personal income.
Personal Income vs. Personal Consumption Expenditures
Personal income is often compared to personal consumption expenditures (PCEs). PCEs measure changes in the price of consumer goods and services. By taking these changes into account, analysts can ascertain how changes in personal income affect spending.
To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services.
Is personal income before or after taxes?
Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted.
How do you calculate personal income and disposable income?
To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth.
Disposable income is then calculated by taking the personal income number and subtracting personal income taxes.
What is the difference between gross national income (GNI) and personal income?
Personal income focuses on how much money a country’s inhabitants are earning. Gross national income (GNI), on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.