Definition of Discretionary Income
What is “discretionary income”? What is the definition of the term “discretionary income”?
A simple formula for determining discretionary income would look something like this:
Gross Income - Taxes - Personal Necessities = Discretionary Income
Alright - let’s take that from the top.
![-- Finance term definition - Discretionary Income --](https://www.davemanuel.com/images/def_discretionary_income.gif)
Personal necessities, on the other hand, are your essential costs, such as food, shelter, clothing, etc.
So, let’s say that your gross income every month is $5,000. After subtracting taxes, your net income is $3,500. In addition, you pay about $2,000 every month for your personal necessities (mortgage, food, etc).
So, your discretionary income every month would be $1,500.
$5,000 - $1,500 (Tax) - $2,000 (Personal Necessities) = $1,500 (Discretionary Income)
Discretionary income is money that can be spent on non-essential things such as stereos, vacations, movies, etc. Discretionary income can also be “spent” on saving or investing.
--
Davemanuel.com Articles That Mention Discretionary Income:
None