WISE Certification Practice Test 2025 – All-in-One Guide to Master Your Certification!

Discretionary income refers to the income that remains after all necessary expenses have been paid. This concept encompasses the idea that individuals have various mandatory financial obligations, such as housing, food, transportation, and healthcare. Once these essential living expenses are deducted from total income, the remaining funds are classified as discretionary income. This is the money that individuals can choose how to use freely—whether for savings, investment, entertainment, or luxury items, thus giving people the flexibility to allocate these resources according to their preferences and financial goals.

Understanding this distinction is key, as it highlights the difference between what is mandatory versus what can be considered surplus income. The other options refer to concepts that do not precisely match this definition: total income before taxes includes mandatory deductions, while the required amount for bills denotes necessary expenses rather than what remains afterward. The income available solely for savings and investment does not specifically recognize the discretionary aspect of spending that could also include entertainment and leisure activities.