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 Save

    The average propensity to save (APS) is an economic term that ...
  3. Average Propensity To Consume

    The average propensity to consume (APC) refers to the percentage ...
  4. Consumer Discretionary

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

    The amount of money that households have available for spending ...
  6. Dually Employed With Kids - DEWKS

    A household in which there are children and both partners earn ...
Related Articles
  1. Budgeting

    5 Ways To Control Emotional Spending

    Follow these five simple steps to keep your spending under control.
  2. Options & Futures

    Budget Without Blowing Off Your Friends

    With a little planning, you can maintain your social life without breaking the bank.
  3. Budgeting

    The Beauty Of Budgeting

    Make it to the end of the month, before you run out of money.
  4. Budgeting

    22 Ways To Fight Rising Food Prices

    As food costs rise it can be difficult to stay on budget. Here are some handy tips to spend less at the till.
  5. Mutual Funds & ETFs

    Investing In Leisure Funds

    If you thought investing and fun don't go together, think again. Find out more here.
  6. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine – including, so you don't forget you have the card.
  9. Credit & Loans

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.
  10. Stock Analysis

    How MasterCard Likely Earned a Spot in Your Wallet

    An in depth look at MasterCard and its future prospects as an investment.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center