Discretionary Income

AAA

DEFINITION of 'Discretionary Income'

The amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. Discretionary income includes money spent on luxury items, vacations and non-essential goods and services.

Discretionary income is derived from disposable income, which equals gross income minus taxes.

INVESTOPEDIA EXPLAINS 'Discretionary Income'

Aggregate discretionary income levels for an economy will fluctuate over time, typically in line with business cycle activity. When economic output is strong (as measured by GDP or other gross measure), discretionary income levels tend to be high as well. If inflation occurs in the price of life's necessities, then discretionary income will fall, assuming that wages and taxes remain relatively constant.

Discretionary spending is an important part of a healthy economy - people will only spend money on things like travel, movies and consumer electronics if they have the funds to do so. Some people will use credit cards to purchase discretionary goods, but increasing personal debt is not the same as having discretionary income.

RELATED TERMS
  1. Big Ticket Item

    Big ticket items are high-value items, such as houses and cars, ...
  2. Average Propensity To Consume

    The average propensity to consume (APC) refers to the percentage ...
  3. Average Propensity To Save

    The average propensity to save (APS) is an economic term that ...
  4. Consumer Discretionary

    A sector of the economy that consists of businesses that sell ...
  5. Personal Income

    Total compensation received by an individual. Personal income ...
  6. Dual Income, No Kids - DINKS

    A household in which there are two incomes and no children (either ...
Related Articles
  1. 5 Ways To Control Emotional Spending
    Budgeting

    5 Ways To Control Emotional Spending

  2. Budget Without Blowing Off Your Friends
    Options & Futures

    Budget Without Blowing Off Your Friends

  3. The Beauty Of Budgeting
    Budgeting

    The Beauty Of Budgeting

  4. 22 Ways To Fight Rising Food Prices
    Budgeting

    22 Ways To Fight Rising Food Prices

Hot Definitions
  1. Return On Sales - ROS

    A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". ...
  2. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  3. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  4. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  5. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  6. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
Trading Center