What is Personal Income?
Personal income refers to all income collectively received by individuals or households within a nation. This includes compensation from various sources such as salaries, wages, bonuses from employment or self-employment, dividends and distributions from investments, rental receipts, and profit sharing from businesses.
Key Takeaways
- Personal income is the cumulative amount of money received by the residents of a country.
- Various sources include employment earnings, investment returns, rental income, and business profit sharing.
- Generally subject to taxation, personal income significantly influences consumer consumption.
Understanding Personal Income
While personal income can refer to all compensation received by an individual, the term is typically used at a broader national level. In many jurisdictions, personal income, synonymous with gross income, is subject to taxation above a certain threshold.
Personal income plays a pivotal role in driving consumer spending—the backbone of economic activity. National statistical organizations, economists, and analysts monitor personal income regularly to observe economic trends.
For example, in the United States, the Bureau of Economic Analysis (BEA) tracks monthly personal income stats, contrasting them with prior months’ data. The BEA also categorizes the statistics by sources, like wages, rental income, farming, and income from sole proprietorships, offering a robust landscape of how earning trends evolve.
Usually, personal income surges during economic expansion phases and either stagnates or slightly declines in recessionary periods. Exponential economic growth since the 1980s in countries like China, India, and Brazil has substantially boosted personal incomes for many citizens.
Personal Income vs. Disposable Personal Income
Disposable personal income (DPI) signifies the amount remaining after taxes are deducted from the total personal income. By factoring in taxes, DPI portrays truly available financial resources for spending, saving, or investing.
Personal Income vs. Personal Consumption Expenditures
Analysts often contrast personal income with personal consumption expenditures (PCEs), which measure the price fluctuations of consumer goods and services. Understanding these changes helps evaluate how variances in personal income influence spending.
For example, if personal income rises considerably in a given month alongside an uptick in PCEs, consumers may have more disposable cash, yet their buying power might also face constraints due to rising prices of essential commodities.
Personal Income: Before or After Taxes?
Personal income encapsulates all pre-tax payments made to individuals. It differs from disposable income, which accounts for after-tax money left for spending, saving, or investment.
How to Calculate Personal Income and Disposable Income?
To compute personal income, sum up all sources of income received by individuals or households—gross pay, dividends, rental income, interest, among others all contribute. Disposable income is derived by subtracting personal income taxes from the total personal income.
Personal Income vs. Gross National Income (GNI)
While personal income centers on earnings of a country’s inhabitants, gross national income (GNI) extends to the total income accrued by both residents and businesses within the nation.
Related Terms: gross income, disposable personal income, personal consumption expenditures.
References
- Internal Revenue Service. “Taxation of U.S. Residents”.
- U.S. Bureau of Economic Analysis. “Personal Income and Outlays, June 2023”.
- U.S. Bureau of Economic Analysis. “Consumer Spending”.
- U.S. Bureau of Economic Analysis. “Personal Income”.
- The World Bank. “Four Decades of Poverty Reduction in China”, Pages 20-23.
- U.S. Bureau of Economic Analysis. “Disposable Personal Income”.
- U.S. Bureau of Economic Analysis. “Income & Savings”.
