Spendable income, also known as disposable income, is the amount of money you have left after you meet your tax responsibilities, pay all of your bills and meet any other budgetary obligations you've established for yourself. Understanding your spendable income can help you better manage your finances, pay down debt and save up for large life expenditures.
Make a Budget
A household or personal budget allows you to detail all of your monthly recurring financial obligations. Even if your monthly bills aren't set in stone, a budget helps you estimate required monthly average pay-outs. For example, if your power bill ranges from $200-$400 per month, your budget should estimate your monthly power bill at $300. You can use an accounting or budgeting software program, spreadsheet or simple paper and pen to tally your financial obligations and track your expenses.
Compare Budget to Income
After you pay all of your bills, including mortgage or rent, revolving debt such as credit cards and loans, utilities, car payments, insurance, groceries and entertainment, subtract that amount from your after-tax income. The money left is your spendable income. For example, if you earn $4,000 per month and your bills and financial obligations are $3,000 per month, that means you have $1,000 per month left as spendable or disposable income. This is money that is available for purchasing non-necessities.
Spend Money Wisely
Just because you have money left at the end of the month doesn't mean it's advisable to consider it “extra” money that doesn't need to be accounted for or earmarked for financial security purposes. Use your spendable or disposable income judiciously. For example, set aside a certain amount of money for savings so you have a financial pad to fall back on if you experience unanticipated financial hardship, such as job loss or medical injury.
Make a Financial Plan
Consider using spendable income to pay down debt, save for large purchases like an automobile or home or to finance an education. Also think about options such as retirement planning or investing. Consider talking to a wealth asset manager or financial planner for tips on how to make the most of your spendable income to create a healthy and viable long-term financial plan. This will help you establish a good credit score and avoid the stress that can come from financial mismanagement.
Lisa McQuerrey has been an award-winning writer and author for more than 25 years. She specializes in business, finance, workplace/career and education. Publications she’s written for include Southwest Exchange and InBusiness Las Vegas.