Disposable Income vs Discretionary Income
Disposable income strictly relates to taxes and mandatory government fees such as healthcare, pension and unemployment programs. On the income side of the calculation total income including salary, investment returns, bonus, overtime, tips and commission fees is used.Disposable income is a legal term that comes up in regards to garnishment of wages and other circumstances. As with any legal term, its exact definition will vary by jurisdiction.Discretionary income is the income that is available to an individual after committed monthly charges such as taxes, monthly bills and all payments required to maintain a basic standard of living such as food, clothing, transportation, healthcare and shelter. It is possible for discretionary income to be negative.Discretionary income is an important concept in economics as it relates to quality of life and consumption patterns. Individuals with a low discretionary income may feel stuck as their spending is completely predetermined. Consumption of anything fun such as entertainment, travel and upgrades to living standards requires discretionary income.| Disposable Income vs Discretionary Income | ||
Disposable Income | Discretionary Income | |
Definition | Income that remains after taxes and mandatory government fees. | Income that remains after taxes and the cost of maintaining a basic standard of living. |
