Disposable Income Calculator
What is Disposable Income?
Disposable income is an economic term that refers to the portion of an individual's or household's income that remains available for spending or saving after accounting for all personal tax obligations, legal obligations, and receipt of government transfers. This essentially includes income left over after paying all direct and indirect taxes, as well as any monetary benefits received from the government, which can be social security payments, financial aid, or unemployment benefits. Disposable income plays a crucial role in macroeconomics as it significantly influences consumer spending, which in turn impacts the overall economic performance and GDP growth.
Disposable Income Formula
The disposable income formula is quite simple. In order to calculate your disposable income, you need to subtract personal taxes and other legal obligations from your total personal income and then add any government transfers you receive. The formula is as follows:
Disposable personal income = personal income - government taxes + government transfers
How to use Disposable Income Calculator?
Follow these steps to calculate your disposable income:
Enter your personal income: This includes your total earnings, including your salary, wages, bonuses, or any other income you receive.
Subtract government taxes: List all the taxes that apply to your income, such as income tax, social security tax, and any other taxes you pay. Deduct these amounts from your personal income.
Add government transfers: Include any monetary benefits you receive from the government, such as unemployment benefits, social security payments, or financial aid. Add these amounts to your adjusted income.
Calculate: After entering the necessary details, your disposable income will be calculated based on the formulas mentioned above.
Your final disposable income figure represents the amount of money left for you to spend on goods and services or save for future use.
Example
Let's consider an example to explain the calculation of disposable income using these steps:
Personal income: John earns a yearly salary of $50,000.
Government taxes: John pays $7,000 in income tax and $3,000 in social security tax.
Government transfers: John receives $1,500 in financial aid from the government to support his child's education.
Now, let's apply the disposable personal income formula:
$50,000 (personal income) - $7,000 (income tax) - $3,000 (social security tax) + $1,500 (government transfers) = $41,500
John's disposable income is $41,500.
This amount is what John has left to spend on various goods and services, save for future use, or invest as he prefers. Understanding his disposable income can help John make better financial decisions and plan for his future.