Disposable Income: Meaning and How to have it

What is disposable income?

Disposable income is the amount of money you have available after deducting your tax.

It represents funds that can be freely spent or saved (we hope you do 😉), providing a measure of financial flexibility and spending power.

Disposable Income and the Quality of One’s Life

The amount of disposable income you have can highly influence your quality of life.

This is because it gives you access to the interesting things in life such as basic needs, good healthcare, good education, leisure activities, and cultural experiences. Disposable income or the lack of it can impact your physical well-being, mental health, and personal growth.

With financial security, you can pursue career opportunities, reduce stress, and invest in relationships and hobbies.

Disposable income grants the freedom to make choices that align with your preferences.

You do stuff because you want to, and not necessarily because you have to. You have a work-life balance because you have enough disposable income and don’t have to overwork yourself at a job. You also have the means to appropriately plan for the future.

Ultimately, a well-managed disposable income positively impacts overall happiness and social interactions, and having fulfilling experiences, in turn, contributes to an improved quality of life.

What to do with your disposable income

We know it’s your disposable income, your money; and you have the right to decide how to use it. However, note that the choices you make can very much impact your financial well-being vis-a-vis quality of life.

Here’s how you can use your disposable income effectively:

Save and Invest: Prioritize saving a portion of your disposable income. Create an emergency fund for unexpected expenses and consider investing in stocks, bonds, or mutual funds to grow your wealth over time. Start securing your financial future and enjoy a comfortable retirement.
Repay your debt: Reducing debt can free up future income and improve your overall financial health.
Develop yourself: Invest in yourself through education, courses, workshops, or certifications that can enhance your skills and boost your earning potential.
Improve your living space: Consider home improvement or investments that can increase the value of your property. Upgrade appliances. Renovate spaces.
Invest in your health: Prioritize your well-being by investing in gym memberships, healthy foods, and healthcare expenses.
Give to Charity: Support charitable organizations and causes you believe in.
Plan for Long-Term Goals: Plan for significant life events like buying a home, starting a family, or funding your children’s education.
Fund a business idea: If you have a business idea, consider using your disposable income to fund its growth.
Diversify assets: This is related to the investing earlier mentioned. Spread your disposable income across various financial instruments to reduce risk and have a balanced portfolio.
Reduce Stress: Allocate disposable income to delegate tasks. Hiring help, or investing in services that save time can reduce stress and enhance your work-life balance.
Support your Family: Provide for your family’s needs and goals, whether it’s supporting aging parents, or helping loved ones during challenging times.
Have fun: Oh you thought I wouldn’t mention it. 😁 Well, you should also use some of your disposable income for the activities you enjoy. Travel, explore new places, experiences and hobbies. Balancing work and leisure contributes to a more fulfilling lifestyle.

Why people don’t have a disposable income

Many people don’t have a disposable income, and most times it’s not entirely their fault. Here are some reasons this might be so:

Low Income: Insufficient salary can lead to minimal or no disposable income after removing essential expenses.
Inflation: When the cost of living increases faster than income, it erodes purchasing power, restricting disposable income.
Debt Burden: Repaying loans can leave people with limited disposable income to put elsewhere.
Unemployment and Underemployment: Job loss, temporary work, or inadequate job opportunities result in unstable income, reducing disposable income.
Black Tax: Supporting dependents or family members can strain disposable income.
Lack of Financial Literacy: Inefficient financial management, such as overspending, can impede having disposable income.
Healthcare Expenses: Medical costs, insurance premiums, and related often absorb a significant portion of income.
Taxation: High tax rates and limited tax breaks reduce disposable income for individuals.
Unforeseen Emergencies: Unexpected expenses, like medical emergencies or repairs
Lack of Skills: Limited skillsets and educational qualifications can lead to low-paying jobs and hinder income growth.
Economic Downturns: During recessions, job losses and reduced income opportunities impact disposable income.
Social Factors: Peer pressure for instance can influence spending habits, affecting disposable income.
Age and Life Stage: Different life stages face varying income and expense dynamics.
Lack of Access to Financial Services: Limited access to banking, credit, and investment opportunities can hinder wealth accumulation.

How to have disposable income

Take budgeting seriously
Increase your income
Reduce your debts
Spend less
Negotiate things: Those small savings accumulate over time.
Automate your savings
Invest wisely: Educate yourself about investment options. Start small and let compound interest work in your favour.
Have marketable skills
Build side hustles
Live below your means
Avoid lifestyle inflation: As your income increases, resist the urge to dramatically increase spending.
Tax efficiency: Take advantage of tax deductions and credits to reduce your tax liability legally.
Shop smart: Compare prices. Use coupons.
Invest in preventive healthcare and wellness practices to avoid costly medical bills in the long run.
Continue learning: Stay updated on personal finance strategies through books, online resources, etc
Networking: Build professional relationships that can lead to career growth and new income opportunities.

By adopting a combination of these tips and being disciplined with your finances, you can gradually increase your disposable income, providing you with more financial flexibility and improving your overall quality of life.