Discretionary Income

Marie: What is discretionary income?

By Marie Deary

Discretionary income is the money that a person or household has left after paying for

necessities, such as housing, food, and transportation. It is the money that can be used

for discretionary purchases, such as entertainment, travel, and gifts.

To calculate discretionary income, you can use the following formula:

Discretionary income = Total income - Essential expenses

For example, if your total income is $5,000 per month and your essential expenses are

$3,000 per month, then your discretionary income is $2,000 per month.

Discretionary income can vary depending on a number of factors, including income,

expenses, and lifestyle choices. People with higher incomes typically have more

discretionary income, while people with lower incomes have less discretionary income.

People with higher expenses also have less discretionary income, while people with lower

expenses have more discretionary income. People who make lifestyle choices that are

less expensive, such as cooking at home instead of eating out, tend to have more

discretionary income.

Discretionary income is an important factor in financial planning. It is the money that can

be used to save for retirement, pay for unexpected expenses, or make investments.

People who have more discretionary income are typically able to achieve their financial

goals more easily.

Here are some tips for managing your discretionary income:

 Track your spending. This will help you see where your money is going and

identify areas where you can cut back.

 Set financial goals. This will give you something to work towards and help

you stay motivated.

 Make a budget. This will help you track your income and expenses and

make sure you are not spending more than you earn.

 Automate your savings. This will help you save money without even thinking

about it.

 Invest your money. This will help your money grow over time.

By following these tips, you can manage your discretionary income wisely and achieve your financial goals.