Discretionary Income
The money left over after paying taxes and all essential living expenses.
What is Discretionary Income?
Discretionary income is the portion of personal income that remains after income taxes and necessary expenditures — housing, food, utilities, transportation, and minimum debt payments — have been paid. It differs from disposable income, which is income after taxes only, regardless of living expenses. Economists use discretionary income to model consumer spending on non-essential goods and services, while the U.S. Department of Education uses it as the basis for calculating income-driven student loan repayments. Higher discretionary income signals improved household financial health and supports savings, investing, and consumption of discretionary goods.
Example
A household earns $90,000 annually. After federal and state taxes ($18,000) and essential expenses — rent ($18,000), food ($7,200), utilities ($3,600), and transportation ($6,000) — the family has $37,200 in discretionary income available for savings, entertainment, travel, and discretionary purchases.
Source: Bureau of Labor Statistics — Consumer Expenditure Survey