Portion of an individual's income over which the recipient has complete discretion. To assess disposable income, it is necessary to determine total income, including not only wages and salaries, interest and dividend payments, and business profits, but also transfer income such as social-security benefits, pensions, and alimony. Obligatory payments, including personal income taxes and compulsory social-insurance contributions, must be subtracted. Disposable income may be used for consumption or saving.
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Discretionary income is income after subtracting taxes and normal expenses (such as rent or mortgage and food) to maintain a certain standard of living. It is the amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of: