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What is Discretionary Income?
Discretionary income is the amount of money left over for spending, investing, or saving after taxes and other personal necessities are deducted. Discretionary income is money spent on nonessential items and services, as well as luxury goods and vacations.
Businesses that cater to those who make their living via the sale of discretionary items tend to suffer the most during economic downturns and recessions since this type of income is the first to shrink when a job loss or wage cut occurs.
Discretionary income is the money you have left over after paying taxes and other mandatory expenses. It’s the money you can use to cover your housing costs, food, transportation, healthcare, and other necessary expenses. It’s also the money you can use to save for retirement or investing.
Discretionary income is important because it gives you the ability to choose how to spend your money. You can use it to cover your basic needs or you can use it to improve your lifestyle. Discretionary income is also a good way to save for your future.
Meaning of Discretionary Income
There are a few things you should keep in mind when you’re trying to calculate your discretionary income. First, you need to make sure that you include all of your mandatory expenses. This includes things like rent, mortgage payments, insurance premiums, and utility bills.
Second, you need to make sure that you’re including all of your taxes. This includes federal, state, and local taxes. Finally, you need to make sure that you’re including all of your necessary expenses. This includes food, clothing, transportation, and healthcare.
Once you’ve included all of these things in your calculations, you can then start to consider your discretionary income. Discretionary income is the money you have left over after paying for all of your mandatory expenses and taxes. It’s the money you can use to cover your housing costs, food, transportation, healthcare, and other necessary expenses. It’s also the money you can use to save for retirement or investing.
Discretionary income is important because it gives you the ability to choose how to spend your money. You can use it to cover your basic needs or you can use it to improve your lifestyle. Discretionary income is also a good way to save for your future.
How to calculate discretionary income?
The first step in calculating your discretionary income is to figure out your total income. This includes your salary, wages, tips, commissions, interest, dividends, and other forms of income.
Once you have your total income, you need to subtract all of your taxes. This includes federal, state, and local taxes.
After you’ve subtracted your taxes from your total income, you need to subtract all of your mandatory expenses. This includes things like rent, mortgage payments, insurance premiums, student loan repayment, and utility bills.
Once you’ve subtracted your taxes and mandatory expenses from your total income, you’re left with your discretionary income.
Discretionary income is the money you have left over for spending, investing, or saving after taxes and other personal necessities are deducted. Discretionary income is money spent on nonessential items and services, as well as luxury goods and vacations.
Businesses that cater to those who make their living via the sale of discretionary items tend to suffer the most during economic downturns and recessions since this type of income is the first to shrink when a job loss or wage cut occurs.
How to use discretionary income?
There are a few things you should keep in mind when you’re trying to calculate your discretionary income. First, you need to make sure that you include all of your mandatory expenses. This includes things like rent, mortgage payments, insurance premiums, and utility bills.
Second, you need to make sure that you’re including all of your taxes. This includes federal, state, and local taxes. Finally, you need to make sure that you’re including all of your necessary expenses. This includes food, clothing, transportation, and healthcare.
Once you’ve included all of these things in your calculations, you can then start to consider your discretionary income. Discretionary income is the money you have left over after paying for all of your mandatory expenses and taxes. It’s the money you can use to cover your housing costs, food, transportation, healthcare, and other necessary expenses. It’s also the money you can use to save for retirement or investing.
Discretionary income is important because it gives you the ability to choose how to spend your money. You can use it to cover your basic needs or you can use it to improve your lifestyle. Discretionary income is also a good way to save for your future.
When you’re trying to figure out how to use your discretionary income, there are a few things you should keep in mind.
- First, you need to make sure that you’re using it to cover your essential expenses. This includes things like food, clothing, transportation, and healthcare.
- Second, you need to make sure that you’re using it to save for your future. This includes things like retirement or investing.
- Finally, you need to make sure that you’re using it to improve your lifestyle. This includes things like vacations, luxury goods, and other nonessential items.
Discretionary and Disposable Income: What’s the Difference?
Disposable income is the money that you have left over after you’ve paid your taxes. Discretionary income is the money you have left over after you’ve paid your taxes and all of your necessary expenses.
Discretionary income is derived from disposable income which refers to the gross income minus taxes. Discretionary income is the money that you have left over after you’ve paid for all of your mandatory expenses and taxes. It’s the money you can use to cover your housing costs, food, transportation, healthcare, and other necessary expenses.
The main difference between disposable income and discretionary income is that discretionary income gives you the ability to choose how to spend your money while disposable income does not. Discretionary income is important because it gives you the ability to improve your lifestyle or save for your future.
Discretionary Expenses vs. Non-Discretionary Expenses: What’s the Difference?
Discretionary expenses are the costs of goods and services that you don’t need to survive. Non-discretionary expenses are the costs of goods and services that you need to survive.
Discretionary expenses include things like vacations, luxury goods, and other nonessential items. Non-discretionary expenses include things like food, clothing, transportation, and healthcare.
The main difference between discretionary expenses and non-discretionary expenses is that discretionary expenses are not essential for survival while non-discretionary expenses are. Discretionary expenses are important because they give you the ability to improve your lifestyle. Non-discretionary expenses are important because they are necessary for survival.
Calculating Discretionary Income for Student Loans
Knowing how your discretionary funds may help you get rid of student financing debt is an important step in utilizing government student loan solutions like income-based repayment options.
The federal government also offers four income-based repayment plans, each with its own financial needs. These programs typically lower your student loan payment below what you would pay on a regular plan.
They provide a more cost-effective solution based on income and family size. You must fulfill certain criteria in order to be eligible for these federally sponsored income-based repayment options-
1. Revised Pay As You Earn Repayment Plan (REPAYE Plan):
The REPAYE Plan is available to all federal student loan borrowers with eligible loans. There are no restrictions on the type of degree you received or when you borrowed.
Under the REPAYE Plan, your monthly payment is generally 10% of your discretionary income. Discretionary income is defined as the difference between your adjusted gross income (AGI) and 150% of the poverty guideline for your state and family size.
For example, if you live in a two-person household in Texas and have an AGI of $60,000, your discretionary income would be $5,400 ($60,000 – $54,600). Under the REPAYE Plan, your monthly payment would be $540 ($5,400 x 10%).
2. Pay As You Earn Repayment Plan (PAYE Plan):
The PAYE Plan is available to federal student loan borrowers who:
- Received their first loan disbursement on or after October 1, 2011, and
- Have a partial financial hardship.
A partial financial hardship exists when the monthly amount you would be required to pay on your eligible federal student loans under a standard 10-year repayment plan is higher than the monthly amount you would be required to pay under the PAYE Plan.
Under the PAYE Plan, your monthly payment is generally 10% of your discretionary income. Discretionary income is defined as the difference between your adjusted gross income (AGI) and 150% of the poverty guideline for your state and family size.
For example, if you live in a two-person household in Texas and have an AGI of $60,000, your discretionary income would be $5,400 ($60,000 – $54,600). Under the PAYE Plan, your monthly payment would be $540 ($5,400 x 10%).
3. Income-Based Repayment Plan (IBR Plan):
The IBR Plan is available to federal student loan borrowers who:
Received their first loan disbursement on or after July 1, 2014, or
Received their first loan disbursement before July 1, 2014, and choose to repay under the IBR Plan.
You must also have a partial financial hardship. A partial financial hardship exists when the monthly amount you would be required to pay on your eligible federal student loans under a standard 10-year repayment plan is higher than the monthly amount you would be required to pay under the IBR Plan.
Under the IBR Plan, your monthly payment is generally 10% of your discretionary income. Discretionary income is defined as the difference between your adjusted gross income (AGI) and 150% of the poverty guideline for your state and family size.
For example, if you live in a two-person household in Texas and have an AGI of $60,000, your discretionary income would be $5,400 ($60,000 – $54,600). Under the IBR Plan, your monthly payment would be $540 ($5,400 x 10%).
4. Income-Contingent Repayment Plan (ICR Plan):
The ICR Plan is available to all federal student loan borrowers with eligible loans. There are no restrictions on the type of degree you received or when you borrowed.
Under the ICR Plan, your monthly payment is generally the lesser of:
20% of your discretionary income, or
What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
Discretionary income is defined as the difference between your adjusted gross income (AGI) and 100% of the poverty guideline for your state and family size.
For example, if you live in a two-person household in Texas and have an AGI of $60,000, your discretionary income would be $5,400 ($60,000 – $54,600). Under the ICR Plan, your monthly payment would be $1,080 ($5,400 x 20%).
Here is a video by Marketing91 on Discretionary Income.
What Is Considered a Good Level of Discretionary Income?
Discretionary income is the money you have left over after you pay taxes and cover your basic living expenses. A good level of discretionary income gives you enough money to cover your financial goals and still have money left over for fun.
How much discretionary income you need depends on your personal circumstances and financial goals. If you are trying to save for a down payment on a house, you will need a higher level of discretionary income than someone who is trying to pay off credit card debt.
A general rule of thumb is that you should have enough discretionary income to cover at least 10% of your gross income. So, if your gross income is $50,000 per year, you should aim to have at least $5,000 in discretionary income each year.
How to Increase Your Discretionary Income
There are a few different ways to increase your discretionary income. One way is to make more money. If you can get a raise at your job or find a higher-paying job, your discretionary income will go up.
You can also reduce your expenses. If you can cut back on your spending, you will have more money left over each month. Another way to reduce your expenses is to take advantage of discounts and deals. If you can find ways to save money on your everyday expenses, you will have more money to put towards your financial goals.
Conclusion!
On the concluding note, it is clear that discretionary income is the money left over after you have paid your taxes and covered all your basic living expenses.
Discretionary income calculated by taking into account a few key things will help you calculate it accurately. First, you’ll need to know your income taxes and monthly student loan payments. You’ll also need to know your personal income and any other federal student loan payments you may have. Once you have all of this information, you can calculate your monthly discretionary income by subtracting your total monthly loan payments from your personal income.
A good level of discretionary income gives you enough money to cover your financial goals and still have money left over for fun. There are a few different ways to increase your discretionary income like making more money, reducing your expenses, or taking advantage of discounts and deals.
What are your thoughts on discretionary income? Let us know in the comments below.
