What is disposable income?

Disposable income is defined as the amount of money that individuals have available to spend or save after taxes have been deducted from their gross income. It represents the income that is left over once necessary expenses, such as taxes, are accounted for, enabling individuals to make choices about how to allocate their remaining funds. This could include spending on essentials, providing for a family, saving for future needs, or investing.

Understanding disposable income is crucial for analyzing personal finance and economic behavior since it directly affects consumer spending patterns, saving rates, and overall economic growth. The calculation of disposable income is based on net income, which is derived after tax obligations are satisfied, differentiating it from gross income, which includes total earnings without any deductions.