To have disposable income means that money is left over once all the essential bills and costs of living are paid. It’s a luxury to have and people have varying degrees of it, but in any case, you’ll want to learn more about how to manage it to make it go further.
How to calculate disposable income
Calculating how much disposable income you actually have is the starting point to better understanding your finances, and yet many never get around to figuring out the exact amount they have left over.
If you’re paid monthly or can easily calculate a figure for earnings per month, then that’s a good place to start. The other sum you’ll need is your monthly expenses.
Your expenses are basically all of the crucial payments you need to make, such as rent or mortgage, bills, food and groceries, tax, insurance and so on. Calculate this figure, which should be similar every month, then take it away from your total income. This will leave you with your disposable income.
Monthly Income – Monthly Expenses = Disposable Income
Your disposable income represents the money you have left over once all of the crucial payments. It’s the money you can choose to spend or save.
Bankroll management and budgeting
In the world of casino games like roulette, players employ a strategy known as bankroll management to regulate their spending. Bankroll management involves only placing bets that you can afford to lose and spreading the cost of bets so that the amount kept aside goes further. For instance, online roulette is one of the most popular online casino games and is enjoyed by players around the world. Yet, when indulging in it, proper bankroll management is recommended.
But bankroll management, as well as being a piece of practical advice for spending, also brings us to our next point, which is budgeting.
Budgeting is much like bankroll management. You have a certain amount to spend, but you don’t want to spend it all at once. You want to use it in a way that maximizes enjoyment and the potential for positive outcomes. How you budget your disposable income will make all the difference to your lifestyle.
How to budget your disposable income
There are many recommended guidelines for budgeting. One is the 50-30-20 approach. Using this guideline, you would put aside 50 percent of your income for needs, 30 percent for wants, and 20 percent for savings, investments, or for the repayment of debt.
This can be useful for some people as a general approach. We’ve already covered the 50 percent for needs, which is your monthly expenses. You would then allocate 30 percent to wants, which could be anything from personal gifts to weekly hobbies, and 20 percent to financial goals.
The problem here is that this approach doesn’t take into account people’s individual circumstances. If your expenses are high relative to your income, you may need to put aside more than 50 percent. In that case, your wants or savings percentages would drop. Similarly, if debts are at a high, it’s worth allocating more to their repayment and shaving off from the ‘wants’ category.
To take a more individual approach to manage disposable income, you’ll need to work out for yourself how these three categories interact.
You’ve already prioritised your main expenses, which should include high-interest debt. Now you want to think about how best to budget your disposable income over the course of the month.
Start by thinking about your priorities.
These could be similar every month, such as would be the case with regular hobbies. If you want to make sure you always have enough for a fortnightly fishing trip or weekly meal out, then calculate the costs of those and immediately deduct them from your disposable income.
You should also include unique events and ‘wants’ in this category. For example, if a good friend’s birthday is on the horizon, or a rare showing at the theatre you don’t want to miss, then deduct these costs.
Gradually work through your priorities for the month to get an idea of what you can afford. By budgeting this way, you can get the most enjoyment out of your money.
Savings and financial goals
You don’t have to spend every little bit of your monthly disposable income. That’s not the goal. If you can afford it and have money left over, it’s wise to save.
Savings can serve as a financial cushion if you need to pivot, or they can be used to make major life transitions like getting a mortgage. You may also want to consider investment opportunities, although these should be thoroughly researched and, to bring bankroll management into it again, always within your means.
It’s up to you to decide how much you want to set aside for savings and again it will depend on your circumstances. In any case, putting whatever you can afford aside once your expenses and most of your wants are taken care of will leave you in a better position in the future.