Future Business Leaders of America (FBLA) Advertising Practice test

The amount of money remaining for spending and saving after taxes and other essential expenses are paid is called?

1. A) gross income

2. B) disposable income

3. C) discretionary income

4. D) net income

The correct answer is: C) discretionary income

Discretionary income refers to the income that remains after an individual has paid for all essential expenses, such as taxes, housing, food, and other necessary bills. This type of income can be spent on non-essential items or saved for future use. It often reflects the financial flexibility a person has in their budget, allowing for spending on luxury goods, entertainment, or savings. In contrast, gross income represents the total earnings prior to any deductions. Net income is similar to disposable income, which is the total income available for spending after deductions like taxes, but it includes mandatory expenses. Understanding the distinction among these terms is crucial as it helps individuals assess their financial health and plan their budgets effectively.