Should I include taxes in pay-yourself-first?

If your employer already withholds enough tax, you may not need to add tax reserves here. Self‑employed people or those under‑withholding may want to include estimated tax savings in the pay‑yourself‑first amount.

What if my income varies month to month?

Use an average monthly income based on several months or a year. You can also rerun the calculator for high and low months to see how discretionary income changes.

How much discretionary income should I aim for?

There’s no universal rule, but many people feel more comfortable when discretionary income is positive and at least a small percentage of take‑home pay. The key is that your savings and fixed obligations are covered and your plan feels sustainable.

finance calculator

Discretionary Income Calculator

See how much discretionary income you have after paying yourself first and covering fixed and variable expenses each month.

Results

Total expenses (incl. pay yourself first): $3,800
Discretionary income: $1,200
Discretionary as % of income: 24.00%

How to use this calculator

Enter your total monthly income from all sources.
Enter how much you “pay yourself first” each month—savings, retirement contributions, extra tax reserves, or other priority items.
Enter your fixed expenses (bills that don’t change much) and your variable expenses (spending that fluctuates).
We sum these to find total expenses and subtract from income to compute discretionary dollars.
We also divide discretionary dollars by income to show discretionary income as a percentage of your monthly income.
Use the results to decide whether you want to adjust savings, fixed costs, or variable spending.

Inputs explained

Monthly income: Your total after‑tax cash coming in each month (or a stable average if your income varies). Include wages, side income, rental income, and other regular sources.
Pay yourself first: Savings, taxes, retirement contributions you set aside before spending.
Fixed expenses: Rent/mortgage, utilities, insurance, subscriptions.
Variable expenses: Groceries, dining out, transport, entertainment.

How it works

Total expenses = pay yourself first + fixed expenses + variable expenses.

Discretionary income = monthly income − total expenses.

Discretionary percent = discretionary income ÷ monthly income.

Formula

Total expenses = Pay yourself first + Fixed expenses + Variable expenses\nDiscretionary income = Monthly income − Total expenses\nDiscretionary percent = Discretionary income ÷ Monthly income

When to use it

Planning monthly budgets with a pay-yourself-first mindset.
Checking how much is left for discretionary spending after essentials and savings.
Adjusting savings or expenses to hit a discretionary income target.

Tips & cautions

Prioritize pay-yourself-first to build savings and cover taxes if you’re self-employed.
Use bank statements to estimate variable expenses realistically.
If discretionary income is negative, reduce variable costs or fixed obligations—or reconsider how much you’re saving each month.
Treat a positive discretionary number as your “fun money” budget, not as money that must be spent.
Simple monthly snapshot; does not model debt payoff schedules or irregular income.
Taxes for W-2 employees are usually withheld—include only amounts you need to reserve (e.g., self-employment taxes).

Worked examples

5,000 income with strong savings

Monthly income = $5,000.
Pay yourself first = $1,000 (savings, retirement, tax reserves).
Fixed expenses = $2,500; variable expenses = $1,000.
Total expenses = 1,000 + 2,500 + 1,000 = $4,500.
Discretionary income = 5,000 − 4,500 = $500; discretionary percent = 500 ÷ 5,000 = 10%.

Tight budget with little discretionary income

Monthly income = $4,000.
Pay yourself first = $400; fixed expenses = $2,600; variable expenses = $1,100.
Total expenses = 400 + 2,600 + 1,100 = $4,100.
Discretionary income = 4,000 − 4,100 = −$100; discretionary percent is negative.
Interpretation: you’re overspending; consider cutting fixed/variable expenses or adjusting savings pace.

Deep dive

Calculate discretionary income after paying yourself first, covering fixed bills, and budgeting variable spending.

Enter income and expenses to see how much is left to spend or save each month.

FAQs

Should I include taxes in pay-yourself-first?: If your employer already withholds enough tax, you may not need to add tax reserves here. Self‑employed people or those under‑withholding may want to include estimated tax savings in the pay‑yourself‑first amount.
What if my income varies month to month?: Use an average monthly income based on several months or a year. You can also rerun the calculator for high and low months to see how discretionary income changes.
How much discretionary income should I aim for?: There’s no universal rule, but many people feel more comfortable when discretionary income is positive and at least a small percentage of take‑home pay. The key is that your savings and fixed obligations are covered and your plan feels sustainable.

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This discretionary income calculator provides a simplified snapshot of your monthly cash flow using user‑supplied estimates. It does not account for all financial nuances such as debt payoff strategies, irregular income, or detailed tax situations, and it is not personalized financial advice. Consider working with a qualified financial planner or advisor when designing a comprehensive budget or long‑term financial plan.