disposable income
Income remaining after income taxes — available for spending and saving.
Example
“Rising disposable income allowed more households to afford vacations.”
Memory Tip
DISPOSABLE — after the government takes its share, what's left is yours.
Why It Matters
Disposable income is crucial because it represents the money you actually have available to spend on wants and needs after paying your mandatory tax obligations. Understanding your disposable income helps you create realistic budgets, set savings goals, and make informed decisions about major purchases or lifestyle changes.
Common Misconception
Many people confuse disposable income with their gross salary, thinking they have far more money available than they actually do. In reality, disposable income is significantly less than your total earnings because it only counts what remains after taxes have already been deducted by your employer or paid directly.
In Practice
If you earn a gross annual salary of 60,000 dollars and pay 12,000 dollars in income taxes, your disposable income is 48,000 dollars per year or about 4,000 dollars per month. From this 4,000 dollars, you would then pay for rent, groceries, utilities, transportation, and other living expenses, with whatever remains available for entertainment, savings, or additional investments.
Etymology
From Latin 'disponere' meaning to arrange, plus Latin 'incomum' meaning income.
Common Misspellings
Build a budget and track your spending
Related Terms
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See Also
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