This is wrong too.. since discretionary income comes after taking out basic expenses.
There are some expenses that come before discretionary income (such as food, water, shelter and things that cannot be cut) and their are other expenses that come after discretionary income (such as going out to eat, cigarettes, the costs of a luxury car versus a more practical car/transportation,).. We might not always agree on which of the expenses come before discretionary income and are mandatory expenses and which ones come after discretionary income, so for example if a person chooses a house that is $3k per month rent, even though they could reasonably live in a house with $500 per month rent, then $500 might come before discretionary income and the other $2,500 per month would come after discretionary income.. and of course, some of us will lock in our expenses in ways that it is difficult to change them in a short period of time and we sometimes might consider some of our luxuries as if they were essentials... but those are personal choices in which some guys might be able to generate more discretionmary income by increasing income and/or by cutting some expenses .. especially the non-essential expenses.
Thanks a lot for the clarification, it makes more sense now. You've indeed provided a clearer analysis of managing expenses and income, also extensively emphasized the distinction between expenses that are essential and those that are discretionary. Your approach shows how important it is to prioritize essential expenses such as food, shelter and other basic needs, while also acknowledging the fact that some expenses can be flexible or even optional and that makes a lot of sense.
Your emphasis on the role of debt repayment, savings and emergency funds in personal finance is also well noted. It's true that debt repayment can also be both essential expenses (minimum payments) and can also fall under discretionary expenses ( paying off debt early). And you did a very wonderful job by illustrating this point with the example of the $100 monthly payment on a $2,100 loan.
I appreciate how well you've considered the nuances of managing one's finances, including the effects of variability and uncertainty of one's income on expenses. I've also noted your concept of float funds, that is money that hasn't been allocated to the discretionary income yet, and I find it really interesting too, because it really highlights the importance of adapting to changing circumstances in one's finances.
This approach seems to prioritize financial stability and flexibility, at the same time acknowledging the fact that different individuals have their own different financial goals and priorities and by striking a balance between essential and discretionary expenses, folks can be able to make more informed decisions about income allocation and how to achieve their long term financial goals without feeling much financial pressure.
One aspect of your perspective that really resonates with me is the fact that expenses can be both essential and discretionary, depending on the individual circumstances, and I believe this was the area I was having confusion.
But I've only got one question that I believe not just me but others would love to know and gain clarity on. The question is, how individuals can be able to balance the need to build an emergency fund and pay off high interest loans, particularly when the loan repayment amount is actually fixed, but the emergency fund allocations can be flexible? Would you advice prioritizing loan repayment over building the emergency fund or would it be more appropriate to simultaneously do both and what factor would you advice to be considered when making the decision?