Chapter 3 Budgeting: Using Your Money Wisely 53 Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website. LO 3-4 LO 3-4 Discretionary Income After you total your expenses and subtract from your income, hopefully you will have money left over. This extra money is called discretionary income. Discretionary income is money that remains after you have paid for regular or needed expenses. It is also called disposable income. This is money you can deposit in savings or use to plan for emergencies or leisure activities. It is important to calculate your discretionary income each month. Doing so helps you know how much money you have to use after all your expenses have been paid. If you do not track your income and expenses using a budget, you may find that you have no discretionary income. To calculate discretionary income, subtract your total fixed and variable expenses from your income. income – fixed and variable expenses = discretionary income For example, Carlos wants to calculate his discretionary income. His expenses for the week ending September 10 are $107.15. What will Carlos’ monthly expenses be if he spends this amount every week? His monthly income shown in Figure 3-1 states that he has $493.42 in income. What will his discretionary income be? Step 1 Calculate monthly expenses. Weekly expenses $107.15 Number of weeks × 4 Total monthly expenses $428.60 Step 2 Calculate discretionary income. Monthly income $493.42 Monthly expenses – 428.60 Discretionary income $64.82 Money remaining after expenses are paid is also referred to as a surplus. When there is not enough income to pay all expenses, this is called a deficit. These terms are commonly used on news programs about government spending. F F Y I Phuangphech/Shutterstock.com Creating a budget includes estimating income as well as expenses. An expense is an amount paid for goods or services. Why do you think a budget begins with estimated amounts?