Discretionary Income

If you are reading this, you likely have discretionary income. But what is it anyway? How much do you have?

Generally, the term refers to money you have left after paying necessary obligations like taxes, rent/mortgage, groceries, and insurance.

But the line between necessary and discretionary is not hard and fast. You need clothes to wear, but how much you spend can vary wildly. Do you need a car where you live or for your work? If yes, then auto expenses become ‘necessary.’

Discretionary choices creep into every category of our spending. How much house can I afford? How much house do I want to afford?

If your income was cut in 2020 or will be lower into 2021, it’s useful to take a hard look at your spending to see where your discretionary spending manifests.

For a handy exercise to help you understand how you spend your money, click here.

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