What is disposable income?

Understanding the meaning of disposable income and how that affects your budget is a key factor in achieving financial resilience.

Disposable income is the income you have left after you’ve paid your taxes. The money you have left is available for you to freely spend or save, as you wish.

This kind if income also has an economic significance as it indicates patterns in consumer spending, like how many goods and services are bought at various prices during a certain period. 

What is disposable income?

It’s important to remember disposable income includes necessities like rent, mortgages, travel costs and clothing and non-essential goods and services like eating out or holidays.

How can you budget disposable income?

Lots of experts recommend the 50/30/20. Your necessities like rent, food, taxes or mortgage payments should only account for 50% of your budget, while the 30% should be used on disposable income. Then the remaining 20% should be used for other financial goals like paying off debt, saving or investing.

Last years UK data

Looking back to 2019 disposable income was up £400 per household compared to 2018, according to government data. According to ONS, the medium annual income per household is around £29,400 and the average weekly household expenditure was £572.60 a week or over £29,7000, £300 more than what we bring in!

What tops the list of disposable income expenditure?
It’s no surprise that the biggest costs most of us have in common are transport and housing. After these necessities are paid for, the closest second-biggest costs come under recreation and culture with the average Brit spending £3,879 on things like cinemas, games, stationery and package holidays.

According to Share to Buy we are a nation of impulse shoppers as we buy up to nine impulse buys a month, spending almost £200. With around 6,500 impulse buys a lifetime add up to a cool £144k.

However, in the current climate, our disposable income is set to fall. According to analysis from the Centre for Economics and Business Research states that disposable income earned by UK households, once it has been adjusted for tax and benefits, will be 17% lower in the second quarter of this year. The CEBR has calculated the monthly hit to disposable incomes will reach £14.2bn per month, meaning a monthly fall of £515 per household. So how can we start to budget for this drop in disposable income?

How do we save on disposable income? 

If you want to cut back on spending or start saving more of it, it may be time to rethink your budget.

Some tips to help streamline your budget might be:

  • Paying off your debts using the debt snowball method 
  • Reducing costs at home by using price comparison websites 
  • Try the downshift challenge – where you buy one brand below what you normally would at the supermarket

If you want to learn more about savings goals check out our guide here.

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