"disposable" income?


#1

Can anyone explain what the #$%@^ “disposable income” is really supposed to be??? I am an engineer, so I have above average math skills, but I have to say that accounting math seems to be the most illogical set of garbage rules I’ve ever heard of, and I have a real hard time understanding how they figure most things out.
I am trying to get a better grasp of our budget and where we are headed in our financial future, and I was wondering how our current expenses fit in with an “ideal” model. The first thing I find is that every expert has his own idea of what ideal is, but overall they seem fairly similar in their total percentages. So one guy says household costs should be no more than 30% of your total income, and another says 25%. I can live with that difference. But then one guy says household costs includes mortgage, insurance, utilities, maintenance, and the next guy says this category includes everything from food, clothing and daycare to home repairs, entertainment, personal care and vacations.
So can anyone please explain to the accounting challenged just what disposable income is supposed to cover? (Frankly, I don’t see how food can be considered “disposable”- you NEED it to live.)
BTW- this all started because I read a one paragraph blip in our local paper saying some study concluded that Americans are spending on average some higher percent (I think I recall 36%) of their “disposable income” on food, gas, etc. due to rising costs, and a rather blanket statement that if the cost of Housing, Food, and Auto combined exceed 70 percent of your “spendable income”, then it will be almost impossible to have a balanced budget. So I guess now we have to figure out what spendable income is too???


#2

From what I have always understood but from what you have quoted I may be wrong, but I’m use to that:D . Disposable income is what you have left over from paying for the basics you need.

Basics being - bills, morgage, utilities, groceries, gas, things on those lines.

to me disposable is more like getting a coffee and donut every morning or something that you really don’t need but buy on a regular basis


#3

in my 40 years experience as a wage earner, at times sole support of our family, and whether working for wages or not, handling our finances, investments, tax prep etc. “disposable income” means that there is a long long of people, not excepting politicians, eager to dispose of my income for me.


#4

Disposable income is what you have left after paying taxes.

It’s more than just take-home pay, because there are some discretionary things taken out of your paycheck (401(k), retirement, etc)

What’s left is called disposable income because it seems like it’s gone quicker than if you dropped it down the disposal.


#5

:rotfl:

Ahh I love it!

I think disposable income is what’s left after you pay bills. All bills. It’s the extra you use to go out to eat or rent a movie or do the “extras”.


#6

Here, from investorwords.com, is “disposable income” as opposed to “discretionary income”:

http://www.investorwords.com/1491/disposable_income.html

http://www.investorwords.com/1483/discretionary_income.html
Hope that helps.


#7

TAS,

Disposable income is the income you have after taxes. Discretionary spending is that which is left over after the basics are taken care of. The reporter in the artice is not using all the terms properly-- I believe they meant to say that “discretionary” spending is now being eaten up by the fixed and periodic expenses that are “necessities” and they improperly used the term “disposable income”.

So, a person who used to spend $100 on gas (a necessity) and have $100 left over for movies, eating, out, and such (discretionary spending) now spends $150 on gas and only has $50 in “discretionary” funds for entertainment and such.

Budgeting is not a science with laws like gravity. Budgeting uses guidelines.

So, both the person who says 25% is the household expenses threshhold and the person who says 30% are right. They are both right because it’s a guideline, a range. Ultimately, you have to determine the right range for you, given your circumstances, number of dependents, etc.

My advice: pick a budgeting method and guidelines that fit your family situation and stick with them.

Go to www.financialliteracymonth.com and do their 30 day challenge starting April 1!


#8

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