What is the difference between disposable income and discretionary income?

Disposable income is the amount of income left after taxes and other mandatory charges are deducted. Discretionary income is the amount of net income an individual has to spend after all necessary expenses are paid. Economists monitor both numbers to help determine how consumers as a whole are saving, spending, and borrowing money.

Why are taxes eliminated from disposable income?

Taxes are eliminated from disposable income because they are mandatory. An individual may down-size to save money or splurge on a fancier car but there's no wiggle room in taxes. Disposable income is the amount of money that a person or family has left after paying their taxes.

Why is disposable income important?

Disposable income is not only important to individuals but holds massive value to society as a whole. Its essential qualities include: Financial flexibility: Having disposable income gives people the freedom to decide how to spend their money. It is key to taking care of current requirements as well as making long-term plans.