Disposable Income vs. Discretionary Income

Do you know the difference between disposable income and discretionary income?

We hear these terms thrown around quite a bit. So it’s important to know the functions of both of these terms.

Let’s talk about disposable income… and NO this does not mean you can just dispose of your money any which way. The easiest way to remember this is to keep in mind that it’s all about the money that is left over.

Let me explain…disposable income is the money that is left over after you pay your taxes and/or any health insurance payments that are deducted out of your check. So when you get a paycheck, your disposable income is the net amount.

Now for discretionary income, this is the money that is left over from your disposable income after you pay for your living expenses. Things like food, clothes, gas, utilities and any other expenses associated with living.

Most people use discretionary income to go on vacations, entertainment or expenses related to leisure activities.

Of course you’ll want to enjoy that money, but I suggest taking some of your discretionary income and buying income producing assets.

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