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What Is Discretionary Income?

Discretionary income is the amount of an individual’s income that is left for spending, investing, or saving after paying taxes and paying for personal necessities, such as food, shelter, and clothing.


What Is Considered a Good Level of Discretionary Income?

This is somewhat a matter of lifestyle; however, many experts agree that around 10-30% of your take-home (after-tax) pay should consist of discretionary income. The so-called 50-20-30 rule suggests that 50% of your net income goes towards living expenses, 20% to savings or investments, and 30% to discretionary spending.


What Is the Difference Between Disposable and Discretionary Income?

It’s easy to confuse disposable and discretionary income. Disposable income represents the amount of money you have for spending and saving after you pay your income taxes. Whereas discretionary income is the money that an individual or a family has to invest, save, or spend after taxes and necessities are paid. Therefore discretionary income comes from your disposable income.


Knowing what to do with your discretionary income can be tricky and a place where we all tend to slip up, whether this is impulsively spending it or not planning to use it most effectively.

We recommend starting by having a goal in mind, saving for saving’s sake is great, but this only really works for 20% of us. For the majority of us, we need goals in order to focus on and motivate ourselves to reach our full potential. For example, this could be saving for a car, a deposit on a house, for the kid’s education, whatever it may be, you need to set a target and a goal.

So when you are taking money and allocating it every month (income- expenses= available discretionary income ), whatever is left over is allocated correctly. This might be adding €100 to a fund because you need X amount of money in 3 years. This will allow you to frame your savings in a way that will allow you to stick to it because at the end of the day it is all about forming a habit.

Our biggest piece of advice would be to get all your saving contributions out of the way as soon as you are paid. It’s a big behavioural issue, leaving the money in the account for more days makes you believe there is more money available in the pot to spend.

For more financial planning advice, chat with one of our experts on the team! Get in touch with us today for advice.

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