Household income is an indicator of the total incomes of people living in a certain household or area of residence. It contains all forms of personal income, including salaries, pensions, benefits, retirement earnings, near-cash government transfers such as food stamps, and capital gains. In addition, household income also comprises of expenditures on housing, transportation, education, childcare, and other costs incurred by people living together.
The concept of household income has two basic levels: first, the lower-income group, that is, those with low household income; second, the middle-income group, which includes the average income level of households. The average income level of households can be compared to a standard basket of goods and services, or to the median income level of comparable households. As a rule, income refers to the difference between the mean and median income of households.
In addition to the income of families, it is also important to analyze the income of single individuals and households that are self-employed, or households that consist of only married couples. In these types of households, the earning of one person may be lower than that of another individual or family unit. Consequently, the income of these households may not be high enough to pay for the basic needs of the members of these households.
The concept of household income also takes into account the various sources of income available to a household. This includes both sources of earned income and sources of unearned income. The earned income may include salary, salaries, bonuses, wages, benefits, and social security benefits, including employer-paid retirement benefits. The unearned income may include dividends from savings accounts, lottery winnings, interest earned on savings accounts, interest earned on money market mutual funds, income earned through real estate investments, interest earned on stocks, income earned through interest on certificates of deposit, income earned on business loans, and any other income not included in the income of a person’s household.
One way to calculate a household’s income is to calculate its gross income divided by its net income. The gross income refers to the total income earned by a household, and the net income refers to its disposable income minus its gross income. The gross income may include all sources of income of a household. and may include any type of earned income such as employer-paid retirement benefits and retirement income. or government retirement income received from sources other than an employer.
The disposable income of a household refers to income obtained directly from sources other than an employer. This could include dividends, interest, and savings accounts, but excludes any amount that would otherwise be taxable income. or interest earned on cash and securities. Most household income is considered disposable income because most family members have some form of tax deferred income or are eligible to receive benefits that reduce their taxable income.
In addition, household income could also include any income that does not include Social Security, unemployment, state and/or federal taxes, and any other tax-deductible payments made to an individual or a family unit. Another example is the Federal Supplemental Security Income (SSI) program. that provides benefits for the elderly, disabled, blind, and children.
Household income has many dimensions and is an important part of budgeting for all families. The concept of household income should be included in any analysis of the family’s financial resources. Because households often contain many members with varying incomes, this income is important for planning for the future.
In general, the household income concept includes all sources of financial resources of a household and the ability to meet its needs. It includes the value of each household asset, the value of each household liability, and the net worth of each household unit. Although many households do not require all of these aspects of household income, it is important to consider them because of the importance of them to budgeting.
The concept of disposable income relates only to the income that a household generates through its income source. It does not include non-income expenses, debts, and the difference between income and disposable income. Thus, a household may not need to include all of its disposable income in its income or disposable income, but would still need to consider it when calculating its disposable income.
The concept of disposable income also does not include expenses that would be tax deductible. For example, if a household is responsible for paying the mortgage on the home, its disposable income would include the difference between the outstanding mortgage balance and the actual mortgage balance. However, if a household spends money on items that have a tax deductible component, these expenses would not be included in the household income of the household. Therefore, there is no income on these expenditures. However, expenses that are not tax deductible would be income that would need to be reported on the income tax return.