Question: How Is Discretionary Income Calculated?

What percentage of your take home pay should be discretionary income?

30 percentWell, there is an answer.

Spend 30 percent of your after-tax income on discretionary items.

But there’s a huge catch: your necessities can consume only 50 percent of your after-tax pay before you can spend 30 percent on wants.

The other 20 percent should go to debt or savings..

How do you spend discretionary income?

Here are five smart ways to invest your tax refund — and reap some big rewards.Pay Off Debt. This is probably the least fun way to spend discretionary income because you won’t have anything tangible to show for it. … Meet With a Fee-Only Financial Planner. … Open a 529 Plan for Your Child. … Invest in Your Home. … Take a Vacation.

What is the difference between discretionary and disposable income?

For instance, your disposable income is the amount of money you have left over after you’ve paid all of your federal, state and local taxes. On the other hand, your discretionary income is the money you have left over after you’ve paid your taxes plus all of your necessary living expenses.

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. Discretionary income includes money spent on luxury items, vacations, and nonessential goods and services.

What is another word for discretionary income?

What is another word for discretionary spending?disposable incomediscretionary incomedisposable personal incomediscretionary expenses

What is a good amount of discretionary income?

Many experts say your necessities—rent or mortgage payment, food, taxes—should account for only 50 percent of your budget, while discretionary spending should account for 30 percent or less. The remaining 20 percent should be used for other financial goals, such as paying off debt, saving, or investing.

What is 10 of my discretionary income?

Discretionary Income Percentage For a simple example, let’s say your annual discretionary income is $12,000 and you’re on PAYE. That means 10% of your discretionary income would be your student loan repayment amount. $12,000 * 10% = $1,200 per year. So, your monthly payment would be $100.

What is another word for discretionary?

In this page you can discover 14 synonyms, antonyms, idiomatic expressions, and related words for discretionary, like: optional, left to discretion, discretional, changeable, arbitrary, judgmental, personal, elective, facultative, opinion and surprise.

How much should you have after all bills are paid?

According to the rule, you should be spending no more than 43 percent of your before-tax income on all your debt payments. So, if your gross income per month is $4,000, your total debt including mortgage, auto loans, credit card payments and student loans should be less than $1,720.

Is discretionary income before or after taxes?

Discretionary income is the money you have left over from your post-tax income after paying for necessary expenses like rent, utilities and food. It’s what you use to buy non-essentials (or discretionary expenses) throughout the month. For example, let’s say you bring home $3,000 a month after taxes.

How do you calculate household income?

Start with “federal taxable wages” for each income earner in your household.You should find this amount on your pay stub.If it’s not on your pay stub, use gross income before taxes. … Multiply federal taxable wages by the number of paychecks you expect in the tax year to estimate your income.More items…

What is an example of discretionary income?

Discretionary income is what a household or individual has to invest, save, or spend after taxes and necessities are paid. Examples of necessities include the cost of housing, food, clothing, utilities, and transportation.

How is IBR discretionary income calculated?

Generally, your monthly payments under Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) are calculated as 10% or 15% of your “discretionary income”, which is your income minus 150% of the poverty level for your family size and state.

What does discretionary mean?

adjective. subject or left to one’s own discretion. for any use or purpose one chooses; not earmarked for a particular purpose: discretionary income; a discretionary fund.

How do you figure out your discretionary income?

Take your AGI on your tax return and subtract 1.5 times this number and you have your discretionary income.