What is the difference between discretionary and disposable income?

Asked By: Roumaissa Zitelli | Last Updated: 11th June, 2020
Category: personal finance home financing
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Key Takeaways. Disposable income is the net income available to invest, save, or spend after income taxes. Disposable income is calculated by subtracting income taxes from income. Discretionary income is what a household or individual has to invest, save, or spend after taxes and necessities are paid.

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Regarding this, what is the discretionary income?

Discretionary income is the money you have left over from your post-tax income after paying for necessary expenses like rent, utilities and food. That means you have $1,500 of essential expenses and $1,500 in discretionary income, which you can put toward discretionary expenses.

Also Know, what is an example of disposable income? disposable income. noun. Disposable income is defined as money that a person has left over to spend as he wishes after all of his required expenses have been paid. An example of disposable income is the $100 left in your checking account once all of your bills have been paid.

Similarly, you may ask, what is monthly disposable income?

Also known as disposable personal income (DPI) or “take-home pay,” disposable income, is the amount of money available after taxes and other employee deductions have been taken out of your paycheck. It's not truly “disposable” because it has to cover your family's most essential needs each month.

What is good disposable income?

Many experts say your necessities—rent or mortgage payment, food, taxes—should account for only 50 percent of your budget, while discretionary spending should account for 30 percent or less. The remaining 20 percent should be used for other financial goals, such as paying off debt, saving, or investing.

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How do I determine my discretionary income?

Your discretionary income is simply your adjusted gross income found on your most recent tax return(line 37 on form 1040) minus 150% of the poverty guideline for your family size. To calculate your discretionary income, you need to know a few things. The poverty guideline for your state.

How do you spend discretionary income?

Discretionary Income: 5 Smart Ways to Spend It
  1. Pay Off Debt. This is probably the least fun way to spend discretionary income because you won't have anything tangible to show for it.
  2. Meet With a Fee-Only Financial Planner.
  3. Open a 529 Plan for Your Child.
  4. Invest in Your Home.
  5. Take a Vacation.

What is discretionary income used for?

Discretionary income is the income that remains after subtracting allowances for mandatory expenses, such as taxes and basic living expenses. The term discretionary income is used in connection with financial aid need analysis and income-driven repayment plans.

What is non discretionary income?

Not subject to or influenced by someone's discretion, judgment, or preference. Non-discretionary spending is spending that is required by a budget, contract, or other commitment. A non-discretionary law is one that is enforced absolutely, and not at the discretion of authorities.

What does 10 of your discretionary income mean?


For a simple example, let's say your annual discretionary income is $12,000 and you're on PAYE. That means 10% of your discretionary income would be your student loan repayment amount. $12,000 * 10% = $1,200 per year. So, your monthly payment would be $100.

What is the 15% formula?

15% is 10% + 5% (or 0.15 = 0.1 + 0.05, dividing each percent by 100). Thinking about it this way is useful for two reasons. First, it's easy to multiply any number by 0.1; just move the decimal point left one digit. For example, 75.00 x 0.1 = 7.50, or 346.43 x 0.1 = 34.64 (close enough).

What is the average disposable income?

Across the OECD, the average household net adjusted disposable income per capita is USD 30 563 a year.

What is the difference between disposable income and discretionary income quizlet?

Disposable income is the net income available to invest, save, or spend after income taxes. Disposable income is calculated by subtracting income taxes from income. Discretionary income is what a household or individual has to invest, save, or spend after taxes and necessities are paid.

How much money should be left over after paying bills?

According to the rule, you should be spending no more than 43 percent of your before-tax income on all your debt payments. So, if your gross income per month is $4,000, your total debt including mortgage, auto loans, credit card payments, and student loans should be less than $1,720.

What is the 50 20 30 budget rule?


The 50/30/20 rule budget is a simple way to budget that doesn't involve detailed budgeting categories. Instead, you spend 50% of your after-tax pay on needs, 30% on wants, and 20% on savings or paying off debt.

What affects disposable income?

Disposable income is defined as the total amount of household income that's available for spending and saving after paying income taxes. If disposable income decreases, households have less money to spend and save, which then forces consumers to consume less and become more frugal.

What is personal income and disposable income?

Disposable income is after-tax income that is officially calculated as the difference between personal income and personal tax and nontax payments. Disposable income provides useful information about the amount of income received by the household sector that is actually available for spending.

What age group has most disposable income?

Incomes of households headed by 54- to 72-year-olds, Baby Boomers today, are at record levels, while those of current Generation X households (ages 38 to 53) are about the same as the peak earnings of similarly aged households in the past.

Why is disposable income important?

Disposable income is the amount of income left over after an individual or business pays all mandatory expenses. Disposable income is important for businesses because they need consumers with disposable income to buy their products or services.

What is another name for disposable income?


Need synonyms for disposable income? Here's a list of similar words from our thesaurus that you can use instead.
  • discretionary income.
  • disposable personal income.
  • discretionary expenses.
  • discretionary spending.

What are two things you can do with disposable income?

What Exactly Is Disposable Income?
  • Health Insurance (Your employer might withhold)
  • 401k plan contributions (Your employer might withhold)
  • Loan payments (Home, auto, student loans, credit cards)
  • Utility bills.
  • Insurance (Homeowner's, Auto, Life)
  • Non-retirement investments.
  • Savings.
  • Groceries.

What does disposable income include?

Disposable income is the amount of money an individual has after taxes. On the other hand, discretionary income is how much an individual has after paying for taxes and necessities, such as rent, utilities, health insurance, and food.