Chapter 2: Career Pathways

What Determines Your Personal Income?

 Personal Income refers to all income collectively received by all individuals or households in a
country.
 it includes compensation from a number of sources, including salaries, wages, and bonuses
received from employment or self-employment, dividends and distributions received from
investments, rental receipts from real estate investments, and profit sharing from businesses.
 aka "before-tax income," is the total annual gross earnings of an individual from all income
sources, such as: salaries and wages, investment interest and dividends, employer
contributions to pension plans, and rental properties.
 Personal income is the amount of money collectively received by the inhabitants of a country.
 Sources of personal income include money earned from employment, dividends and
distributions paid by investments, rents derived from property ownership, and profit sharing
from businesses.
 Personal income is generally subject to taxation.

What Is Disposable Income?

Disposable income also known as disposable personal income (DPI), is the amount of money that an
individual or household has to spend or save after income taxes have been deducted.

 Disposable income is net income. It's the amount left over after taxes.
 Discretionary income is the amount of net income remaining after all necessities are covered.
 Economists monitor these numbers at a macro level to see how consumers save, spend, and
borrow.
 Shelter, food, and debts are usually paid using disposable income.
 The government uses disposable income when deciding how much of a paycheck to seize for
money owed in back taxes or child support.

What is income Tax

Income Tax refers to a type of tax that governments impose on income generated by businesses and
individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to
determine their tax obligations.

 Income tax is a type of tax that governments impose on income generated by businesses and
individuals within their jurisdiction.
 Income tax is used to fund public services, pay government obligations, and provide goods for
citizens.
 Personal income tax is a type of income tax that is levied on an individual's wages, salaries, and
other types of income.
 Business income taxes apply to corporations, partnerships, small businesses, and people who
are self-employed.


Who are the Tax Payers?

A taxpayer may be an individual or business entity that is obligated to pay taxes to a federal, state, or
local government. 

 A taxpayer may be an individual or business entity that is obligated to pay taxes to national or
local government.
  Taxes from both individuals and businesses are a primary source of revenue for governments.
 Individuals and businesses have different annual income tax obligations.

Understanding Personal Income

The term personal income is sometimes used to refer to the total compensation received by an
individual, but this is more aptly referred to as individual income. In most jurisdictions, personal
income, also called gross income, is subject to taxation above a certain base amount.

 What Is Gross Income?

Gross income is also known as gross pay when it’s on a paycheck—is the individual’s total pay from
their employer before taxes or other deductions.

 This includes income from all sources and is not limited to income received in cash; it also
includes property or services received
 Gross income for an individual consists of income from wages and salary plus other forms of
income, including pensions, interest, dividends, and rental income.2
 Gross income for a business, also known as gross profit or gross margin, includes the gross
revenue of the firm less cost of goods sold, but it does not include all of the other costs
involved in running the business.3
 Individual gross income is part of an income tax return and—after certain deductions and
exemptions—becomes adjusted gross income, then taxable income.

 What is Base Amount

Base amount is the fundamental numerical assumption from which something is begun or developed or
calculated or explained

 Base pay is an employee's standard rate of pay, and which does not include benefits, bonuses,
raises, or other compensation.
 Base pay can be expressed as an hourly rate or as an annual salary.
 Annual pay calculations include the items not included in base bay calculations, namely
benefits, bonuses, raises, and overtime.

Example:
Base Pay / Basic salary - is the amount of money a salaried employee regularly earns before any
additions or deductions are applied to their earnings. 

 What Is Net Income (NI)?

Net income (NI) also called net earnings, is calculated as sales minus cost of goods sold, selling,
general and administrative expenses, operating expenses, depreciation, interest, taxes, and other
expenses.

 Earnings per share are calculated using NI.

 You should review the numbers used to calculate NI because expenses can be hidden in
accounting methods, or revenues can be inflated.
 NI also represents an individual's total earnings or pre-tax earnings after factoring deductions
and taxes in gross income.
  Personal Gross Income vs. Net Income

Gross income refers to an individual's total earnings or pre-tax earnings, and NI refers to the difference
after factoring deductions and taxes into gross income.

Planning Your Career

Some people know what they want to do at an early age. For most people, however, the path is just
not that clear. Career planning and development can be a process of trial and error as you learn your
abilities and preferences by trying them out. Sometimes a job is not what you thought it would be, and
sometimes you are not who you thought you would be. The better your decision-making process, the
more objective and methodical it is, the less trial and error you will have to endure.

Your financial sustainability depends on having income to support your spending, saving, and investing.
A primary component of your income—especially earlier in your adult life—is income from your wages
or salary—that is, from working, or selling your labour. Your ability to maximize the price that your
labour can bring depends on the labour market you choose and your ability to sell yourself. Those
abilities will be called on throughout your working life. You will make job and career choices for many
different reasons. This chapter looks only at the financial context of those choices.

10 Steps to Financial Security Before Age 30

 Knowing how much you spend can keep spending in check.

 Live within your means, don’t use credit to fund a lifestyle, and set short-term achievable
financial goals.
 Become financially literate and save what you can for retirement.
 Take calculated risks, such as moving to a city with more job opportunities or taking on a new
job that pays less but has more upside potential.
 Invest in yourself by continually upgrading your skills and knowledge.
 Strike a balance—working toward financial security doesn’t mean you need to deprive yourself.

SOURCES/REFERENCES:

https://financialempowerment.pressbooks.com/chapter/chapter-15-career-planning/

https://www.investopedia.com/terms/d/disposableincome.asp

https://www.ventureline.com/accounting-glossary/B/base-amount-definition/

Prepared by:

Lesley Allen D. Kabigting, MBA

College of Business Administration
Guagua National Colleges