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. Consumer Discretionary

    A sector of the economy that consists of businesses that sell ...
  2. Discretionary Expense

    A discretionary expense is a cost which is not essential for ...
  3. Discretionary Beneficiary

    Discretionary beneficiaries are those named in a trust or similar ...
  4. Discretionary Cash Flow

    Discretionary cash flow is any money left over once all possible ...
  5. Income

    Money that an individual or business receives in exchange for ...
  6. Autonomous Consumption

    The minimum level of consumption that would still exist even ...
Related Articles
  1. Budgeting

    What is Discretionary Income?

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

    Explaining Consumer Discretionary

    Consumer discretionary is a term from economics that refers to the sector of the economy that produces goods and services that are nonessential.
  3. Chart Advisor

    2016 Could Be Another Great Year For The Consumer Discretionary Sector

    Consumer spending was in full force in the fourth quarter of 2015. We'll take a look at the companies that stand to benefit and see where they are headed in 2016.
  4. Mutual Funds & ETFs

    Consumer Discretionary ETFs Shedding Assets (AMZN, WMT)

    Learn about five consumer discretionary exchange-traded funds that experienced the largest year-to-date capital outflows as of March 4, 2016.
  5. Mutual Funds & ETFs

    3 Best Dividend-Paying Consumer Discretionary Mutual Funds (VCDAX, FSCPX)

    Discover consumer discretionary mutual funds and learn about three high dividend-paying consumer discretionary funds available as of March 2016.
  6. Investing

    Disposable Income

    Disposable income is the money a person has left over after all taxes have been paid. Other deductions that may affect the amount of disposable income are employment deductions for things like ...
  7. Mutual Funds & ETFs

    5 Best Dividend-Paying Consumer Discretionary ETFs (RTH, RCD)

    Discover the five best dividend-paying consumer discretionary ETFs, which is one of the best-performing sectors in the market since 2013.
  8. Stock Analysis

    3 Consumer Discretionary Stocks Near Their 52-Week Highs Worth Selling (MCD, SBUX)

    Understand why it's a good time to consider selling consumer discretionary stocks, particularly those trading near their 52-week highs.
  9. Fundamental Analysis

    Consumer Discretionary Vs. Consumer Staples in 2016

    Learn why understanding the seasonal tendencies of consumer discretionary and consumer staple sectors will help improve investors' portfolio performance.
  10. Chart Advisor

    Profit from Consumer Spending with this ETF (VCR)

    As Americans finish purchasing the last of their holiday gifts, the consumer discretionary sector will continue to be one of the primary beneficiaries.
RELATED FAQS
  1. 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 >>
  2. Why do economists think it is important to track discretionary income?

    Learn about the importance of discretionary income to economists, particularly for economists who emphasize consumer spending ... Read Answer >>
  3. 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 >>
  4. What is the difference between disposable and discretionary income?

    See how disposable income and discretionary income are different, with an example to demonstrate why discretionary income ... Read Answer >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center