1. What Is Discretionary Income?

Discretionary income is the amount of money left after subtracting taxes and essential living expenses from your total income. It represents the money you can spend, save, or invest as you choose.

2. How Is Discretionary Income Calculated?

The calculator uses the following formula:

Where:

• \( Income \) — Total gross income before any deductions
• \( Taxes \) — All taxes paid (income, payroll, property, etc.)
• \( Essentials \) — Necessary living expenses (housing, food, utilities, etc.)

Explanation: This calculation shows how much money remains after meeting all mandatory financial obligations.

3. Importance of Discretionary Income

Details: Discretionary income is crucial for financial planning, determining spending capacity, and assessing financial health. It affects loan eligibility and measures economic well-being.

4. Using the Calculator

Tips: Enter your total income, all taxes paid, and essential living expenses in dollars. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between disposable and discretionary income?
A: Disposable income is income after taxes, while discretionary income subtracts essential expenses from disposable income.

Q2: What counts as essential expenses?
A: Essentials typically include housing, food, utilities, transportation, insurance, and minimum debt payments.

Q3: How can I increase my discretionary income?
A: You can increase income, reduce taxes through legal deductions, or decrease essential expenses by finding more affordable options.

Q4: Is discretionary income the same as savings?
A: No, discretionary income is what's available after essentials, but you choose whether to spend or save it.

Q5: Why do lenders look at discretionary income?
A: Lenders assess your ability to repay loans by examining income available after essential expenses.