Have you ever looked at a budget and felt overwhelmed by all the complex financial terminology? Do words like “appropriations”, “fiscal year” and “deficit” leave you feeling confused? If so, you’re not alone. Understanding budget terms can be tricky, especially for those who don’t have a background in finance. But it’s important to understand the basics of budgeting to make informed income decisions. In this blog post, we’ll break down some of the most commonly used budget terminologies and explain them in simple terms so that anyone can understand.
Table of Contents
Gross national income (GNI)
Gross National Income (GNI) is the total income earned by a nation’s citizens, businesses, and government, with fewer payments made to foreign countries. It is calculated as the sum of all income earned by individuals, companies, and the government. GNI includes income from wages, salaries, rental income, profits, interests, and dividends. It also includes net transfers, such as gifts and foreign aid. In short, GNI is a measure of the total production of goods and services in a country. It is an important indicator of economic performance and is often used to compare the wealth and development levels of countries across the world.
National Income (NI)
National Income (NI) is the total value of the goods and services produced in a country within a given period. It is calculated by adding up all incomes earned from the production of goods and services, including salaries, wages, profits, and investment returns, among others. NI provides a measure of economic performance and is used to compare income levels across countries. The calculation of NI is also important for policymakers when formulating budgets as it is used to determine government revenue and taxation. It is important to note that national income includes both the money made in the country’s economy and any income received from abroad. This makes it a more accurate indicator of a country’s true economic performance.
Disposable Income (DI)
Disposable income (DI) is the amount of money that individuals have to spend after taxes, social insurance payments, and other deductions. It is an important indicator of people’s financial status, as it represents the amount of money available to be spent on goods and services or saved for the future. Disposable income is calculated by subtracting all taxes, social insurance payments, and other deductions from a person’s gross income. In other words, it is the remaining budget left over after taxes and other deductions have been taken out. Generally, this will be the same as one’s net pay, or take-home pay. An individual’s DI can also be affected by government spending, subsidies, and benefits. DI is an important indicator for evaluating the economic health of a country since it gives insight into how much money people have available to spend and save.
Net National Income (NNI)
Net National Income (NNI) is the total amount of income received by all individuals and companies in a country after all taxes, deductions, and depreciation have been taken into account. It is the total amount of income available to be used to cover the cost of goods and services. NNI provides an indicator of the economic performance of a country, as it shows how much income is being generated by citizens and businesses. It is usually calculated on an annual basis. NNI can be used to compare income levels among different countries and to measure the growth rate of a country’s economy.
Personal Income (PI)
Personal Income (PI) is the total income of a person from all sources, including wages and salaries, investments, pensions, and any other type of regular or irregular income. It is a measure of one’s economic well-being, often used in economics and finance to compare the economic stability of individuals. PI includes earned income from employment, self-employment, and capital gains from investments and asset sales. It does not include income from social security, welfare payments, or other forms of transfer payments. Generally, PI excludes taxes, so it reflects the amount of money an individual can spend after tax deductions are taken into account. This can be compared to the national average and used to gauge a person’s economic position in society.
Per Capita Income (PCI)
Per Capita Income (PCI) is the average income earned by individuals in a nation over some time, usually one year. It is calculated by dividing the total national income of a country by its population. The PCI takes into account income from both individuals and companies. This measure is useful for understanding the budget condition of a country because it provides a better picture of the total average income of all people in that country. It also helps to assess the level of inequality among citizens since it takes into account the economic differences between them. PCI is an important tool in understanding economic growth and how to distribute resources equitably.
Real Income
Real income, also known as purchasing power, is the actual amount of money that people have available to spend after taking into account inflation. It’s the number of goods and services people can buy with their current income. It is calculated by adjusting nominal incomes for changes in prices and is measured as a percentage of their original buying power. In other words, if your real income decreases, you will have less money to buy goods and services even if your nominal income stays the same. Real income allows us to measure the effect of inflation on individuals’ standard of living.