What does "discretionary income" refer to?

Discretionary income refers to the amount of income that remains after all essential expenses have been paid, such as housing, food, transportation, and other necessary costs. This income can be used at the individual's discretion for non-essential items or activities, such as entertainment, vacations, and luxury purchases.

Understanding discretionary income is crucial for budgeting and financial planning, as it indicates how much money a person has available for saving, investing, or enjoying leisure activities once their basic needs are met. This concept highlights the distinction between necessary spending and optional spending, making it easier to assess one’s financial health and spending habits.