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Disposable income

Disposable income is defined as personal income minus personal taxes.

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Expanded Definition

Disposable income -- the amount of money a person has to spend or save/invest as she wants -- is obviously crucial when setting a budget, planning for retirement, or trying to decide whether to buy that little cabin in the woods. Disposable income is important on a macroeconomic level because, in the U.S., personal consumption makes up more than two-thirds of gross domestic product. So questions arise, such as: How much do people have to "dispose" of? Will they save it or pump it into the economy with purchases? Will they purchase durable goods like cars or routine goods like toothpaste and hamburgers? Will they dig themselves into debt by borrowing more than the amount of their disposable income?

The U.S. Department of Commerce's Bureau of Economic Analysis is one source of statistics on disposable income, as well as other economic data. The disposable income available to households is used to calculate the health of the economy and predict future trends. A sustained decline in personal disposable income can be an indicator of a recession.

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