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Discretionary Income Management 101 for Graduates

April 30, 2020Uncategorized

The amount of one’s income that is left after the utilities, rent, taxes, and necessary purchases are deducted from it. The discretionary income is then the income one has at his/her disposal to invest or save. Once the personal necessities are taken care of, the amount in hand is a free gateway to further investment, or it could be spent on luxuries such as vacations, a shopping spree or it could be saved for any uncertain financial need in the future.

One thing to keep into consideration here is that although discretionary income is often termed as disposable income, these two are different. Discretionary income in actual is derived from the disposable income once the taxes are deducted from the gross income.

And when you are a fresh graduate or enrolled in a study program, it is now that your basic financial management skills are starting to hone. That depends on how well you learn to use the money at your disposal and make smart choices about it. And for this purpose, some of the sound strategies are to be made from the very beginning. Depending on your income, you can easily make a financial plan for your personal gain, however, some tips could come in handy on the way.

Always Plan a Budget

Making a budget is planning of how much you spend. And this is not just a one-time event, it is a habit which when inculcated, reaps benefits for a very long time. For those having a hard time dealing with their finances, this could be very basic to start from. Mainly, it is essential to note down your income and the expenses that are incurred on a regular basis should be deducted. By jotting this down, you will have the figure of your discretionary income.

Now you can save up some portion of it and invest some of it while you also have the chance to spend it on anything you wish for. It is advised to wait to spend this amount and see if the plan works for you for a couple of months. If not, you can trim down the unnecessary spending and bring it to the value desired.

A Control on Utilities

One of the main reasons budgets go awry and there is no trace of discretionary income, is that the utilities go out of control. While it is a responsible behavior towards the environment as well, it is also essential to limit your use and control the bills. While some of the fixed costs cannot be curtailed, you can reduce a good amount of your monthly bills by reducing the unnecessary consumption which might as well be the wastage. You can also look for discount coupons for stores and wait for holiday sale time for the purchase of some luxury items.

Do Not Accumulate Debt

One of the surefire ways to ensure you do not get a lot of discretionary income is to carry large amounts of debt such as the best student loans, and keep paying off the interest for years. To gain some financial structure and treat yourself with some savings every now and then, avoid debt unless it is an absolute necessity. And if you have debt already, pay it off as soon as you possibly can.

This way your expenses will be limited to the basic use of items and taxes but not interest, which could result in a positive balance of discretionary income. You can also make a plan of paying off your debts depending on the priority such as student loans, car loans, credit card bills, etc. Once you start paying off your debts, you will start to notice a positive change in your lifestyle as well.

Discourage the Use of Credit Cards

As we discussed earlier, having a lot of debt is hazardous to your financial standing. Similarly, using a lot of credit cards and for every other time you log onto an online shopping portal is going to get your budget wayward in no time. The reason is, you start spending more than you save for the said expenditure. The temptation and the pull are very strong, hence it is a good idea that when you plan to set a budget, leave your credit card behind so you only pay with what’s in your hand. Reserve the credit cards for a necessary item.


Saving little by little turns into a wonderful habit especially when you are a fresh graduate and are taking baby steps to money management, such as the step to refinance student loans. This helps take control of your financial situation and helps you in taking bold steps later in life with the help of a good monetary fund already in reserve. Also, this paves paths for many new business ideas. Keep a track of your discretionary income and make sure it goes up so your financial strength curve doesn’t face a fall.