What Is Disposable Income in a Personal Income Statement?

Questions about disposable income and personal income statement are important for your finances, so pay attention to these queries and seek the guidance of a professional if you’re unschooled in the sundries of financial management and investment planning. Professionals -- such as certified public accountants, wealth managers and retirement advisers -- can help you understand what it takes to grow your disposable income and reduce indebtedness.

Disposable Income

Disposable income is money left over after you pay taxes and other mandatory charges, such as child support and fiscal garnishments -- which serve to pay arrears a taxpayer has with the Internal Revenue Service or states' revenue authorities. With your disposable income, you can spend as you wish and settle personal charges. These run the gamut from insurance and utilities to groceries, entertainment and interest -- which may pertain to debts as diverse as mortgages, funds owed on credit cards and car loans. Note that principal amounts on the last three debts don’t qualify as expenses because they’re merely repayments of money you received from lenders in the first place.

Income Statement

If you prepare a personal income statement, you learn about things that make you spend a lot of money and those that can make you richer. When finance people talk about a statement of profit and loss, report on income, P&L or income statement, they’re alluding to the same data summary. In a personal P&L, list revenues on one side and expenses on another. At the bottom of the report, display net income -- or loss, if expenses exceed revenue items. In this context, “net income” is interchangeable with “disposable income.” Revenues come from salaries, interest on money-market accounts and investment gains -- the kind you reap when playing the stock market, usually by buying and selling products such as stocks and bonds.

Solvency

The whole debate about disposable income and personal P&L touches on the strategies and tactics people rely on to lead economically balanced lives, make money, remain debt-free or reduce indebtedness, and remain solvent throughout their active years and when retirement time comes. Being solvent means having more assets than debts, and both items often connect with disposable income. For example, money you make helps you purchase assets as diverse as a car, a house and U.S. Treasury bills. You also can borrow to pay for the same purchases.

Personal Financial Reports

In addition to a personal statement of profit and loss, other accounting data summaries help you get a well rounded view of your finances. These include a statement of cash flows and a statement of financial position -- the name accountants often give to a balance sheet, or report on financial condition.

References

• Personal Finance 101: How to Effectively Set and Track Goals
• U.S. Small Business Administration: Personal Financial Statement
• New Jersey Economic Development Authority: Personal Financial Statement
• "Inc."; How to Create a Personal Financial Statement; Christine Lagorio; February 2010
• Bookkeeping Essentials: How to Read the Income Statement