Person using their smartphone calculator to determine the difference between their disposable income and their discretionary income

Disposable vs. Discretionary Income

Written by Jillian Walsh

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Disposable vs. Discretionary Income – What’s the Difference?

Though often used interchangeably, disposable and discretionary income are actually two different measurements of an individual’s spending power. Disposable income refers to an individual’s net income, take-home pay, or the amount remaining after personal income taxes have been deducted from their salary. For instance, if your annual salary is $100,000 and 32% of it goes toward taxes, your disposable income would be approximately $68,000.

Discretionary income, however, is the remaining sum after accounting for all essential expenses. These expenses include rent, transportation, food, and utilities, as well as insurance and other necessities. By subtracting these costs from your disposable income, you can calculate your discretionary income. Using the above example, if your disposable income is $68,000 per year and your essential expenses amount to $24,000 annually, your discretionary income would be $44,000 per year. This figure represents the funds available for spending or saving once all basic needs have been met.


What the is Difference Between Disposable and Discretionary Income?

Disposable income measures how much money an individual has to spend on all expenses, while discretionary income measures how much money an individual has to spend in ways that they decide on, after their financial obligations have been satisfied. Disposable income will be impacted by a job change, a job loss, or a large life change. While discretionary income can be affected by inflation, the financial obligations an individual takes on, and a change in essential costs like rent, food, or transportation.


Woman calculating disposable vs. discretionary income while reviewing tax documents


How Can I Increase My Disposable and Discretionary Income?

Disposable and discretionary income can both be increased. You can increase your disposable income by increasing your gross income—this could be done by getting a second job, applying for a larger role than your current role, or starting a side business. You can increase your discretionary income by paying off debt or reducing necessary expenses—this could be done by shopping around for a lower car insurance rate, clipping coupons at the grocery store, living with a roommate instead of living alone, or carpooling to work. Each individual’s circumstances will vary, and what changes will impact your disposable and discretionary income will be particular to you and your specific needs and preferences.


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