# What is Personal Income?

Definition: Personal income is the gross earnings received by an individual or a household including all the sources of compensation such as wages, salaries, investments, and bonuses.

## What Does Personal Income Mean?

What is the definition of personal income? Economics takes a broader view on personal income by defining it as the earnings from all households in a country. This is very important in determining the level of domestic consumption. It includes all the salaries, wages, bonuses, social security benefits, food stamps, dividends, profit-sharing collections, employers’ contributions to 401k, and any other form of income that an individual may receive. This is not to be confused with net pay.

On a national level, the personal income formula is calculated by adding the compensation of all households.

Let’s look at an example.

## Example

John and Mary are a young couple that works at a nearby warehouse. John wants to calculate the individual income of their household to get an idea of how much money they make per year.

First, he writes down his wages and Mary’s wages. He works 40 hours per week for \$53 an hour, and Mary works 40 hours per week for \$44 per hour. This makes \$2,120 per week for John and \$1,760 per week for Mary. They both work 52 weeks, so their annual income from wages is \$110,240 for John and \$91,520 for Mary.

John’s father is giving him \$100 per month to help him with the household expenses. This totals up to \$400 per month or \$20,800 per year. In addition, Mary is babysitting at some neighboring homes, and she earns \$35 per hour for 9 hours per week. This totals up to \$16,380 per year. Also, John and Mary have a money market fund, and they earn a monthly interest of 8% on their \$1,500 investment. This totals up to \$1,440 per year.

Based on above information, John’s income is \$132,480 per year, and Mary’s income is \$107,900 per year. So, the personal income for their household is \$240,380. This amount is the gross income of John and Mary’s household.

## Summary Definition

Define Personal Income: PI means the total amount of compensation that a household receives during a period.

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