Disposable versus Discretionary Income

Is “Disposable Income” something we recycle? And is “Discretionary Income” something no-one talks about? No... But they both refer to forms of available income after expenses. To avoid confusion, here is the difference:

Disposable income is the money that is available to invest, save, or spend after deducting income taxes.

Discretionary income is what a household or individual has to invest, save, or spend from their disposable income after necessities are paid.

For example:

  • If someone's annual gross income is $60,000 and they pay 30% in taxes, their disposable income is $42,000 ($60,000 - $18,000).
  • If they also spend $2,000 per month on essential expenses, their discretionary income is $18,000 ($42,000 - $24,000).

Knowing what you can do with your discretionary income can help you make decisions about your spending.

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Important Information

This article has been prepared by IMB Bank and contains general information only. It is not intended to be relied on as advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal,  financial, taxation or other professional advice before you make any decisions about your business. Consider the relevant Terms and Conditions or Product Disclosure Statement and Target Market Determination available here before deciding whether to acquire any products or services offered by IMB Bank. Lending criteria, terms and conditions, fees and charges apply to IMB loan products.