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Disposable Income (DPI) | How to Calculate Personal DPI? - YouTube
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clicking the bell icon friends today we
have a topic which is disposable
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income well we'll try and understand
this topic in a much more detailed
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fashion so disposable income is
basically income resources that is
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available you know for what we call as
the expenditures and savings and
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investments for the purpose of all the
payables you know income taxes have been
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accounted for the household this is also
known as dpi that is known as your
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disposable personal income it forms a
basis of several other calculations and
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as assessments like related to the
household income including the rate of
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what we call as savings in expenses and
disposable personal income you know can
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be broken up in in its components to be
understood better you know and a
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detailed analysis of the personal income
and expenditures can be done now what
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exactly is the formula for this for dpi see
dpi formula will go something like
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this
dpi is equal to disposable personal
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income formula is equal to your gross
annual income less you need to deduct
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that's called payables or payable taxes
so when you deduct your annual income
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the gross annual income I am talking
about and of that from that you deduct
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your taxes your personal taxes and any
sort of other deductions that is
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available to you when you deduct these
two things you get your disposable
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income so now let's get into the
explanation part to get into more nitty
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gritties of the same now see from a
macro economic perspective see
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economists they considered dpi to be to
better understand in the health of an
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economy
now higher level of income results in
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increase in the levels of the income and
it is adding to the spending ability of
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the consumer and they are promoting the
tendency to save and invest in better
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and more sophisticated avenues for the
long term so basically this you can say
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this also reflects the what we call as
state of an economy and in if individuals in the
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households they are borrowing or saving
more or on collective level it is widely
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used for collecting several metrics
including like you know discretionary
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income marginal propensity to save
marginal propensity to consume so it's
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like mps MPC and you know personal
savings that it's also considered so how
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discretionary income differs from the
disposable income one is your
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discretionary income other is disposable
income so what exactly is the difference
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here see discretionary income is another
useful measure which differs from what
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we call as disposable income and it
takes away the income taxes as well all
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the necessary expenses from the gross
income to arrive at the portion of the
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income that is available to what we call
as household for spending with certain
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amount of discretion so they can choose
to spend it on investment vehicles buy
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household equipments or basically
articles of like personal use or save
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the amount you can say that they also do
saving of the amount for the future use
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like example example of non
discretionary expenditures you know
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could be like rent food clothing
transportation insurance premiums and
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any outstanding bills so disposable
income on the other hand you know can be
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described as you know as the take-home
pay which is going to be used for making
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any or and all the expenses including
both discretionary and the
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non-discretionary in nature so
discretionary income can be calculated
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I'll just write in a short way
discretionary income that is income
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formula is equal to your DPI formula
that is you have to deduct the DPI from
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the discretionary income you need to
deduct is equal to dpi less any sort of
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essential expenditures that includes all
sort of like you know rent outstanding
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bills insurance premium food transport
clothing and so on and so forth
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when you deduct that you get
discretionary income so discretionary
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income is the actual portion of the
household income which can be utilized
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with the view to secure the financial
future through savings and investment or
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can be used for requiring like you know
goods or availing services of one's own
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choice okay let me run you through an
example let's assume that the household
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has the total annual gross income that
we are talking about is let's say
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$54,000 and after taking away what
we call as the income taxes and other
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deductions a total of let's say $40000 are left and then you know that
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would be disposable personal income for
the household for that particular year
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so taking ahead the same example for the
disposable income suppose the
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non-discretionary expenses like rent
food clothing and so on and so forth it
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amounts to let's say $31,000
then we would deduct it from the
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disposable personal income right which
is $40,000
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sorry disposable personal we don't have
DPI's $40,000 to derive the
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figure of $9000 which would
represent the actual discretionary
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income for the household which they can
choose to spend as they wish so one
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example of how disposable personal
income and the discretionary income
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would would be affected by the economic
changes on a broader scale and it would
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be to be how changes in the interest
rates would potentially it affects any
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income of the household like for
instance if the what we called as the
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interest rates went up make
discretionary income would be
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proportionally reduced by take
with a bigger chunk of the mortgage
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repayments and if the interest rates go
down it would add up the discretionary
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income available to the household second
you know another such example of
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disposable income is that of the income
taxes income taxes rates in in a country
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which directly impacts the level of the
income available to the household so now
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if the income tax rates are let's say
increased it would lower down the
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disposable personal income and if they
should go down the income would witness
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a commensurate rise so again if the
income tax rates are increase it would
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lower down the disposable personal
income that's very mature because you're
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paying more to the government and if
they should if they should go down the
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income would witness a rise right now
there are some related metrics of
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disposable income the first one is the
what we call as the personal savings
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rate that's the first one it can be
described as the what we call as the
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percentage of the income that goes into
the savings for the use of retirement or
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the purpose
second is MPC marginal propensity to
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consume which can be described as you
know percentage of every extra dollar
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spent or out of the disposable personal
income so it depends on rising or
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lowering levels of the discretionary
income which serves as an important
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indicator for the economists to couch
the levels of the spendings and
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increasing or you know maybe warning the
interest of the individuals in spending
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the greater amount or what they can
choose to save or spend well that's what
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the drivers let me make my final
conclusions on this disposable income
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you know is no doubt an important
economic measure for studying how well
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an economy is doing for the whole and
whether the households are individuals
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earning enough to meet the
non-discretionary expenses with related
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relative ease so this is what frees them
from thinking more about improving the
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quality of life and financial security
by spending more on what we call as high
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quality goods and services well my
saving for future use and other measures
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related to the this income especially
the discretionary income plays a very
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important role in understanding the fine
points about the household economy
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better which in turn reflects the
overall state of the economy so that's
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