Discretionary Income Meaning

Discretionary income is an important concept in economics because it refers to that cash which remains in the hands of individual after paying all his or her expenses like food, shelter, cloths and also taxes. It can be better understood with the help of an example; suppose your yearly salary is $90000 and your basic expense for the year is $40000 and taxes of $30000 than your discretionary cash for the year would be $20000. One can use this available cash for spending on luxury items like expensive watches, mobiles, vacations and so on, companies which are in luxury segment targets such customers who have greater discretionary cash available with them.

It should not be confused with disposable income and the difference between the two is that while disposable income is cash left after paying taxes and therefore it does not reflect how much one has paid for basic expenses which is the case with discretionary income. Hence disposable income will always be greater than discretionary income.

1 comment… add one

  • K R Natarajan

    Can you please clarify the difference between discretionary and disposable income more clearly with an example if possible

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