Future Business Leaders of America (FBLA) Personal Finance Practice Test

What term is used to describe the money left over after essential expenses have been paid?

1. Disposable income

2. Gross income

3. Discretionary income

4. Net income

The correct answer is: Discretionary income

Discretionary income is the correct term for the money left over after essential expenses, such as housing, food, transportation, and taxes, have been paid. This portion of income is what individuals can use to spend on non-essential items, such as entertainment, luxury goods, and vacations, allowing for more freedom in spending decisions. In contrast, disposable income refers to the total income available after taxes but before any other essential expenses are deducted, while gross income represents the total earnings before any deductions, such as taxes or retirement contributions. Net income, on the other hand, is the amount remaining after all deductions, including taxes and other withholding, which can also include essential expenses. Given these distinctions, discretionary income specifically emphasizes the funds available for optional spending after meeting necessary financial obligations.