What Counts as Disposabe Income

 

 “Disposable income” is a term that gets thrown around a lot in today’s world. But, what most peopledon’t realize is that, for taxation purposes, it actually has a real, legal definition. Basically, in this sense, disposable income is any money you have left over from your earnings after having paid your taxes.  

Discretionary Income 

Keep in mind, however, that a lot of disposable income is different than “discretionary income,” which is the money you have left after paying for basic necessities, such as food, housing, healthcare, and other general necessities of human life. While you can, especially with the help of a qualified financial professional, limit how much you spend as discretionary income, you cannot totally do away with spending some of it.  And, for this reason, it’s a good idea to consider your disposable income as what you have left over after taxes minus what you need or prefer to spend to live.  

What to Do with Your Money  

Unfortunately, after paying for basic necessities, some people do not have much real disposable income left over. In these cases, individuals are highly encouraged to get professional financial help. With this kind of assistance, they could create a budget that allows them to still have some money left over at the end of each pay period. Or, they could make adjustments to their withholdings or consider other options to provide them with more disposable income. For those who are fortunate enough to have actual disposable income, it’s vital to use it wisely.  

Important things, such as putting money in savings, paying down debt, and investing are all wise ways to use any disposable income you may have. And, if you do these things well, you may eventually have more of it to work with.  

The Bottom Line  

Ultimately, no matter where you stand financially and no matter how much true disposable income you may or may not have, if you earn money, there is always room for improvement. If you don’t have much money to work with, learn how to earn more or how to put your current money to better use. And, if you do, learn how to use it wisely so that you will benefit in the future, not just in the immediate present.