Disposable Income
BeginnerDisposable income is the money left from your income after taxes and compulsory deductions have been taken out. It is what you actually have available to spend or save.
Disposable income starts with gross income and subtracts the amounts you have no choice about, mainly income tax and compulsory social security or pension contributions. What remains is the money that reaches your bank account.
For example, if you earn 5,000 a month and pay 900 in income tax and 300 in compulsory contributions, your disposable income is 3,800.
Disposable income still has to cover essentials such as rent, food, utilities and transport. What is left after those essentials is called discretionary income. The two terms are often confused, but disposable income is the larger figure because it includes money that is already committed to necessities.
Economists watch total disposable income across a country closely, because it drives consumer spending, which is a large part of most economies. When taxes fall or wages rise, disposable income rises and people tend to spend more. When taxes rise or wages fail to keep up with prices, households have less to spend.
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