Unless you're fortunate enough to earn so much money that you don't need to keep a tight rein on your spending, it's vital to know how much disposable income you have if you're going to avoid getting into debt. You can use a simple calculation to work out how much of your income goes on non-discretionary bills and how is left for you to spend.
Calculate your total monthly non-discretionary outgoings for the last calendar month. Non-discretionary items are any bills that you have to pay. Include your rent or mortgage, utility bills, insurance costs, traveling to work costs, any child maintenance and what you spend on servicing debt. You should also include Internet bills, cellphone subscriptions and cable packages. Although these items could be classed as discretionary, they are fixed monthly outgoings that you're contracted to pay. Exclude what you spend on groceries and non-work related travel because you have some element of control over these. You'll probably find it useful to consult bank and credit card statements to work this out.
Work out how much is taken from your pay each month in taxes and Social Security deductions. If your tax is withheld automatically by your employer, consult your payslip. If you're responsible for paying your taxes yourself, use an online tax calculator.
Add your monthly non-discretionary spending to your total tax and Social Security deductions. Then, subtract the number you're left with from your gross monthly pay to get your disposable income.
Divide the figure you're left with by the number of days in the month you analyzed. If you don't spend more than this amount on a daily basis, you'll be left with money to spare at the end of the month.
- Divide the figure you're left with by the number of days in the month you analyzed. If you don't spend more than this amount on a daily basis, you'll be left with money to spare at the end of the month.
Michael Roennevig has been a journalist since 2003. He has written on politics, the arts, travel and society for publications such as "The Big Issue" and "Which?" Roennevig holds a Bachelor of Arts in journalism from the Surrey Institute and a postgraduate diploma from the National Council for the Training of Journalists at City College, Brighton.