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What Is Disposable Income?

September 24, 2021 By john

One of the most important things you can do to improve your overall quality of living is to sit down and determine how much disposable income you have available to you on a regular basis. The first challenge is an inherent one and that comes from misconceptions on what the term really means.

It becomes more difficult because there are some terms that get used interchangeably and just ends up confusing the matter so let’s try now to clear this all up and make it easy to determine. Typically we think of disposable income as what we have leftover of our paychecks after paying taxes and recurring expenses such as utility bills, vehicle insurance and rent or mortgages. 

There is some disagreement, stating that disposable income doesn’t count the recurring bills we have to pay but that doesn’t really play well with how reality works. To further complicate things, sometimes your hours might be subject to change or you might have a fixed monthly income you know is going to come. 

Each of the situations above is a regular occurrence for most people so it is easiest to regard the term disposable income as that which you have left over after having paid taxes and all necessary expenses for day to day survival.

In some cases you may want to plot out your disposable income on a month to month basis or you might be able to more reliably plan out your disposable income on a yearly basis. Either way, sitting down and planning out how much disposable income you have is an extremely wise thing to do. 

While staying in the realm of the realistic, we can also look at savings as part of those required expenses, saving for emergencies can prove to be extremely useful whether an emergency comes or not.

The most important thing to keep in mind comes after you sit down and calculate just how much potential disposable income we have every year in that just because your math says you have a hefty sum of free income does not mean we should go wild and spend well beyond our means and end up paying the price for it later.

No matter what walk of life you come from or what your financial status is, one of the key things you can do to help better plot and plan your finances is to sit down and crunch some numbers to determine exactly how much disposable income you have on a month to month or yearly basis and use that knowledge to live better.

Filed Under: Taxes

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