What is disposable income?

Disposable income is the amount of money that a person or family has left after paying their taxes. It is the portion of income that can be spent on necessities, such as food and rent. People can also use disposable income to pay for discretionary items, leisure activities, and investments.

What is the difference between disposable income and discretionary income?

For one, disposable income—reminder, your earnings minus mandatory deductions—is used to calculate what portion of your wages might be garnished for payments you owe, such as child support or to creditors. Discretionary income, on the other hand, is the money remaining after taxes and essential cost-of-living expenses, such as food and housing.

How is disposable income calculated?

Disposable income can be calculated as personal income minus personal current taxes. The amount of disposable income for the residents of a country is closely followed by economists, as is the level of consumer spending, which depends in part on disposable income.