Table of Contents

Understanding Personal Income vs. Disposable Income: Key Differences

By

Julia Kagan

Updated September 20, 2025

Reviewed by Eric Estevez

Part of the Series

Income Tax Term Guide

Taxes Definition: Types, Who Pays, and Why

Filing Status

Types of Income

Tax Types and Terms

What Is Personal Income?

Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.

Key Takeaways

Disposable personal income (DPI) highlights what individuals have left to spend, save, or invest after taxes are deducted, distinguishing it from gross personal income.
Personal income encompasses various sources such as wages, dividends, and rental receipts, and is typically subject to taxation.
Monitoring personal income can reveal economic trends, as it impacts consumer spending, which is a significant driver of the economy.
Economic conditions like expansion or recession greatly influence personal income levels, affecting consumers' purchasing power.
Personal consumption expenditures (PCE) provide insight into how changes in personal income affect spending on goods and services.

How Personal Income Impacts the Economy

The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income. In most jurisdictions, personal income, also called gross income, is subject to taxation above a certain base amount.

Personal income has a significant effect on consumer consumption. As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis.

In the United States, the Bureau of Economic Analysis (BEA) tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and sole proprietorships. This allows the agency to make analyses about how earning trends are changing.

Personal income usually goes up during economic booms and stagnates or drops during recessions. Since the 1980s, fast growth in countries like China, India, and Brazil has significantly increased personal incomes for millions.

Comparing Personal Income and Disposable Income

Disposable personal income (DPI) refers to the amount of money that a population has left after taxes have been paid. It differs from personal income in that it takes taxes into account.

It's important to analyze after-tax income because it's the money people have left to spend, save, or invest.

Important

Only income taxes are removed from the personal income figure when calculating disposable personal income.

Relationship Between Personal Income and Consumer Spending

Personal income is often compared to personal consumption expenditures (PCEs). PCEs measure changes in the price of consumer goods and services. By taking these changes into account, analysts can ascertain how changes in personal income affect spending.

Personal income is often compared to personal consumption expenditures (PCEs), which track price changes in consumer goods and services. This helps analysts see how income changes impact spending.

To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services.

Is personal income before or after taxes?

Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted.

How do you calculate personal income and disposable income?

To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth. Disposable income is then calculated by taking the personal income number and subtracting personal income taxes.

What is the difference between gross national income (GNI) and personal income?

Personal income focuses on how much money a country’s inhabitants are earning. Gross national income (GNI), on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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.”

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