Definition of Discretionary Income
- Discretionary income refers to the amount of gross income available to a family after paying for necessities such as rent, food and clothing. Necessities also include debts, such as a mortgage, interest on loans and taxes. A November 2007 study by The Conference Board found that 64 percent of U.S. households have disposable income worth a total of about $1.7 trillion.
- Statistics on discretionary income can vary widely because each family has its own definition of "necessities." One person may feel that a cappuccino in the morning is a necessity, while others may consider only food and shelter their necessities. The definition of "discretionary income" is so imprecise that the Bureau of Labor Statistics (BLS) no longer tracks this data as of 2011.
- View your discretionary income as a cushion against emergencies rather than carte blanche to spend it wildly. For instance, you can use discretionary income to purchase tools, such as a power washer, to start a side business or save and invest that income in the stock market. You can spend your discretionary income to purchase other essentials, such as clothing, when you find them on sale.
- Discretionary income statistics are important for business owners, because it can help them market their products to the correct demographic. For example, teenagers and people over 50 tend to have the most discretionary income. Also, the BLS tracks consumer spending habits that a business can use to extrapolate discretionary income. For example, single individuals tend to buy more motorcycles and sports cars than large families, based on 2009 BLS data.
