Do you want to reveal your disposable income? If so, then this calculator is right for you. It can help you find out how much of your money is left after paying individual or family government taxes. To be clear, when talking about money, we think of your income.
In this article, you can learn how to use the disposable income calculator. In addition, you have a chance to discover everything you ever wanted to know about disposable income, including how it’s calculated and what it stands for in macroeconomics. Let’s dig a bit further and uncover important facts about disposable income.
What Is Disposable Income?
Let’s start with the definition of disposable income (also referred to as disposable earnings) and go from there. So, what is it?
Disposable income is the money that a person has available to spend after they have paid their taxes, living expenses, and other financial obligations. It also refers to the amount of money you have left over after social security and other deductions are taken out.
Essentially, it’s calculated by subtracting the sum of all expenses from one’s total income. We will check the disposable income formula later. Now you should know that disposable personal income represents an economic term referring to the money (part of income) that non-corporate businesses or households can either spend or save when they receive government transfers and meet all the tax obligations.
Usually, this phrase is used when talking about how much money a person has to spend on things like food, clothes, entertainment, or any other items that they might want. Some people have more disposable income than others because they are in higher tax brackets or because they can afford to pay for things like childcare or education out-of-pocket.
When it comes to transactions to the government, it should be noted that this includes some non-tax payments (like traffic tickets) in addition to personal taxes. As for transfers that you get from the government, keep in mind that this covers every transaction that doesn’t come with a service or product in return. That can include everything from social security payments to welfare and unemployment benefits or any other type of financial aid.
Formula: How Disposable Income Is Calculated?
Now that you know more about disposable income, it is time to check the disposable income formula. Fret not, it’s very simple. This estimation involves subtracting the government taxes as well as other legal obligations (like business registrations, contracts, selling goods and services) from personal income. Then you need to add government transfers to get the result.
Disposable personal income = personal income – government taxes + government transfers
Example:
- Personal Income: $12,000
- Government Taxes: $1,200
- Government Transfers: $100
Disposable personal income = $12,000 – $1,200 + $100 = $10,900
So, in our example, disposable personal income is $10,900. While this calculation is quite easy, we recommend using our calculator. It will help you calculate your disposable income accurately and in no time. Try it out!
Disposable Income in Macroeconomics
Personal consumption is the most considerable factor that plays a major role in estimating economic output. It contributes to the GDP (Gross Domestic Product) in macroeconomics. For example, consumption makes up about 70% of the GDP in the United States.
Any change in disposable income may greatly affect the GDP growth and the overall state of the economy. That’s because almost every family takes into account its current available income when deciding on consumer spending.
Disposable earnings often serve as an “instrumentality” governments use to impact the economic performance and the level of consumption. In the policy repertoire, there are a variety of instruments that are used to counteract the negative consequences of economic depression.
We will outline some policies that directly affect disposable income, including government investments, government transfers, and tax cuts. So, let’s check them out.
Government Investments
Government investments or purchases cause funds to flow into the economy. This makes the total income rise, which leads to an increase in disposable income. There are different types of government investments. Here, we will shed some light on government investments in AI. As the government is investing in AI research and implementation, this type of investment is on the rise around the world.
The goal of these investments is to promote economic development and growth, as well as to improve the quality of life for all citizens. It is estimated that in 2017, the global government investment in AI was $1.25 billion. The top three countries are the United States, China, and Japan. China spent more than $2 billion on AI by 2020, which makes it the world’s biggest spender on technology.
In the U.S., the government also invests in AI to make sure that it can keep up with global competition and stay ahead of other countries that may be investing more heavily than it does currently. Investing in AI will help governments to address issues such as health care, education, welfare, and even space exploration. This also has an influence on disposable income.
Government Transfers
Governments are increasingly looking at ways to transfer money to people in need. Transferring money to those who need it can be done in a variety of ways, but the most popular and efficient way is through direct transfers. Governments are always looking for new ways to transfer money efficiently.
By supporting people who are hit hardest in terms of finance, the government allowed the most vulnerable families to meet basic needs. For instance, unemployment benefits were very helpful during the financial crisis. This eventually causes disposable earnings to go up, which contributes to a fast economic recovery.
In the United States, the Recovery Act implied financial assistance of $82,200,000,000. It was intended to make it easier for retirees, unemployed, and low-income employees to handle the global economic crisis.
Tax Cuts
Tax cuts are meant to reduce the tax load on the budget of families. Through taxing policy, the government boosts disposable income. The idea behind cutting taxes is that it would stimulate economic growth and investment.
Typically, the tax cut is a relief for the middle class. However, it can also be a relief for small business owners who are able to keep more of their earnings. It can stimulate the economy by giving consumers more money to spend. This will lead to increased demand and higher wages, which will benefit the entire economy.