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.

Understanding Personal Income

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 tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens.

Personal Income vs. Disposable Personal 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.

Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest.

Personal Income vs. Personal Consumption Expenditures

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.