Discretionary income is the amount left over after your “nut” is paid. It’s your choice how this money is used.

What is optional for one family may feel necessary for another. For instance, many people eat out frequently each month. Some people don’t cook at all. Yet, a family that regularly eats out can certainly cut expenses by eating at home more often. That means looking for good recipes, shopping and cooking, all of which involve time and commitment.

The amounts spent on entertainment, home improvements and vacations are also dependent on a family’s means, needs and interests.

Saving and investments are matters financed from discretionary income but essential to long-term financial health. They should be prioritized. Savings are sometimes called the “rainy day” fund. Experts suggest that families build and maintain a cushion that is three to six times their basic monthly expenses. These savings provide the means to ride out an unforeseen, temporary crisis or to take advantage of an unexpected opportunity.

Unlike savings, investment is money set aside, not for emergencies or chance opportunities, but for long-term financial health and household stability. It is money that is or will be invested in a home, a certificate of deposit, a 401(k) or some other kind of investment intended to accumulate value over time. Growth and returns on these investments can help pay for the kids’ college education and, certainly, along with Social Security and Medicare, help ensure the means to live comfortably in retirement.

Building savings and investment accounts takes discipline and planning. At the foundation are the amounts of discretionary income you save or invest each month. Younger families with many bills and lower incomes may have little that can be set aside, but even a small amount, when saved regularly over time and bolstered by interest earned, will develop into a substantial sum. And the amount can be increased as the family’s income grows. What is most important is establishing the habit of thinking about the future and setting aside some funds to address its needs. A good way to do this is to direct-deposit your paycheck with a portion assigned to a savings account. When unexpected raises, bonuses, gifts or yard sale revenues come in, these should be put into the savings account until a conscious decision is made about how to use them.

Individuals and spouses may feel differently about how to balance their need for immediate rest, relaxation and gratification with more strategic concerns about old age, the kids and emergencies that can arrive unexpectedly in anyone’s life. Yet, it is certain that all these issues are in play. None should be ignored as you assess options about the allocation of your discretionary income.

[Steve Clark]