Discretionary Income

Loading the player...

What is 'Discretionary Income'

Discretionary income is 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.

BREAKING DOWN '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. Stock Analysis

    The 3 Most Shorted Sectors in the S&P 500

    Discover why short sellers in the S&P 500 have been the most active in the energy, consumer discretionary and telecommunications sectors.
  2. Stock Analysis

    Is Chipotle Stock Suitable for Your IRA or Roth IRA? (CMG)

    Learn about Chipotle's outlook and the stock's suitability for various retirement investments.
  3. Stock Analysis

    Analyzing Starbucks' Return on Equity (SBUX)

    Understand what factors affected increases in Starbucks Corporation's return on equity and how Starbucks compares to its industry competition.
  4. Budgeting

    This Is the Year to Start Budgeting

    Whether your issue is credit card debt, student loans (or the fact that Social Security isn't rising next year), it's time to learn how to build a budget.
  5. Mutual Funds & ETFs

    Top ETFs for Investing in Coffee (JO, CAFE)

    Learn about the market for coffee, one of the largest agricultural markets, and two ETFs that investors can use to obtain exposure to the coffee market.
  6. Budgeting

    What is Discretionary Income?

    Discretionary income is an economic term referring to income left over after a person pays taxes and living expenses.
  7. Budgeting

    5 Ways To Control Emotional Spending

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

    Budget Without Blowing Off Your Friends

    With a little planning, you can maintain your social life without breaking the bank.
  9. 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.
  10. Mutual Funds & ETFs

    Investing In Leisure Funds

    If you thought investing and fun don't go together, think again. Find out more here.
RELATED FAQS
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Learn how banks determine your discretionary income, and discover why it is important to know your discretionary income even ... Read Answer >>
  2. How do I know how much of my income should be discretionary?

    Understand the difference between discretionary income and disposable income. Learn how much of a person's income should ... Read Answer >>
  3. What category of retailers will perform most strongly when the economy is doing well?

    Learn why volatile market segments such as automotive and building supplies tend to perform the best among the retail sector ... Read Answer >>
  4. How does discretionary income relate to autonomous consumption?

    Learn what differentiates discretionary income from autonomous consumption, how the two relate to each other and what place ... Read Answer >>
  5. What are the key metrics used to measure the business cycle?

    Learn what key metrics are used to determine if the business cycle is in a period of expansion, contraction, or at a peak ... Read Answer >>
  6. What is the difference between disposable income and discretionary income?

    Learn about disposable and discretionary income, including why these measures are important, the main difference between ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center