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Disposable income

 

 
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Disposable income
 
 
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Disposable income is gross income
Gross income

Gross income is commonly defined as the amount of a company's or a person's income before all deductions or any taxpayer?s income, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account....
 minus income tax
Income tax

An income tax is a tax levied on the financial income of people, corporations, or other legal entities. Various income tax systems exist, with varying degrees of tax incidence....
 on that income.

Discretionary income is income after subtracting taxes and normal expenses (such as rent or mortgage
Mortgage

A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt....
 and food) to maintain a certain standard of living. It is the amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of:

Discretionary income = Gross income - taxes - necessities

Despite the formal definitions above, disposable income is commonly used to denote Discretionary income.






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Disposable income is gross income
Gross income

Gross income is commonly defined as the amount of a company's or a person's income before all deductions or any taxpayer?s income, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account....
 minus income tax
Income tax

An income tax is a tax levied on the financial income of people, corporations, or other legal entities. Various income tax systems exist, with varying degrees of tax incidence....
 on that income.

Discretionary income is income after subtracting taxes and normal expenses (such as rent or mortgage
Mortgage

A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt....
 and food) to maintain a certain standard of living. It is the amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of:

Discretionary income = Gross income - taxes - necessities

Despite the formal definitions above, disposable income is commonly used to denote Discretionary income. The meaning should therefore be interpreted from context.

Use of discretionary income in high-income loan applications

When applying for a loan
Loan

A loan is a type of debt. This article focuses exclusively on monetary loans, although, in practice, any material object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the wiktionary:lender and the wiktionary:borrower....
 (mortgage
Mortgage loan

A mortgage loan is a loan secured by real property through the use of a note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which security interest the loan....
, consumer loan
Consumer lending

Consumer lending refers to making a wide range of secured loan and unsecured loan loan to consumers for consumable items such as a car, boat, Mobile home, home equity loan, HELOC, signature loan, signature line of credit, recreational vehicle, or share or certificate of deposit or Stocks and Mutual Funds secured loans....
), lenders may take into consideration a high-income applicant's discretionary income in order to assess the loan repayment capacity of the applicant. Discretionary income provides the lender with more information on the applicant's capacity to repay than the debt-to-income ratio
Debt-to-income ratio

A debt-to-income ratio is the percentage of a consumer's monthly gross income that goes toward paying debts. There are two main kinds of DTI, as discussed below....
 in the case where the applicant has a lot of debt, but also a lot of income, such that the percent of available income may be smaller than normal standards would allow, but the actual amount of money is still large.

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-- even though this says it's measuring "disposable income," using the economist's language, it's discretionary income.