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Finance Friday: discretionary income

discretionary income

Disposable and discretionary income

Disposable income is the money we have coming in after we have paid taxes and other compulsory deductions. Discretionary income is the money we have left for enjoying life after we have paid out for essentials.

The essentials are obviously water, a place to live, food, clothing, energy costs and most people would count telecommunications as an essential. Although health care in the UK is provided by the NHS, we still have to pay for basic things. People still have to pay for basic medicines, prescriptions and other health related essentials.

The worst off in society have much less discretionary income because benefits have been cut, food and energy prices have soared and VAT was increased. Many people can’t enjoy life at all, because their discretionary income has been reduced to zero. Many would argue we all need some kind of social interaction and some form of entertainment, if it’s only watching television. For the poorest in society, any discretionary income comes from cutting down on the essentials; either reducing the amount of energy they use or the amount of food they consume. Malnutrition has become a serious problem.

If your discretionary income is 10% of your total income, it doesn’t take much to wipe it out entirely. Extra discretionary income can come from interest from savings, but interest rates are at an all time low. Investing on the stock market is unaffordable for many ordinary people with the costs of trading so high.

Many wealthy people have huge discretionary income. Even the chief executives of your local health trusts and local council have plenty of discretionary income after they have paid for their essentials. So what do they use the money for? A television in every room? They tend to invest the money, often in the home they live in. That can go up in value by as much as 10% a year in the south east of England where it’s not uncommon for houses to be selling for a cool million.

Is that extra hundred thousand a year they get as their homes go up in value income? It certainly adds to their wealth. The ever increasing value of their pension pot, usually paid for by the tax payer makes them wealthier too.

Society seems even more unequal when you look at discretionary income rather than total income. Every rent rise on social housing cuts the amount of money poor people have to make life worth living, every rise in telephone rental that are always way above  inflation, cuts their already poor standard of living. Every rise in energy prices, bus fares or food makes life harder and leaves less and less discretionary income, until for many people who are forced to use food banks,  until there is no discretionary income.

Is your discretionary income getting squeezed more and more? Monetarism rules across most of the world now, making it hard to trade and make money. Are you wasting your life as a result? Please share your thoughts in the comments box. You can also follow me on Twitter for updates.

One Response

  1. Pingback: The Review: perspective | Mike10613's Blog

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