What is Disposable Income?

Disposable income is the total amount of income an individual makes after direct taxes.

Gross income - taxes = Disposable income

Discretionary income is the amount after taxes and after the cost of the fixed expenses of life (such as rent/mortgage, food, car payments, insurance, etc.), which is also called necessities.

Gross income - taxes - necessities = Discretionary income

It is income that can be saved or spent on goods and services wanted, not needed. Disposable income is gross pay minus taxes and deductions. In other words, disposable income is the same as "net pay". Unfortunately, the definition of discretionary income is fuzzier than that of disposable income, making it harder to measure.

When applying for a loan or a mortgage, banks often take into consideration the applicant's disposable income in order to assess the loan repayment capacity of the applicant.

See also

• Household consumption expenditures

External links

• A simple discretionary income calculator -- even though this says it's measuring "disposable income," using the economist's language, it's discretionary income.
• US Bureau of Economic Analysis - Chart of American Disposable Income