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

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center