{"id":1264,"date":"2019-08-16T00:00:00","date_gmt":"2019-08-16T00:00:00","guid":{"rendered":"https:\/\/qa.simplifimoney.com\/blog\/disposable-income\/"},"modified":"2024-11-18T10:22:32","modified_gmt":"2024-11-18T18:22:32","slug":"disposable-income","status":"publish","type":"post","link":"https:\/\/www.quicken.com\/blog\/disposable-income\/","title":{"rendered":"What Is Disposable Income?"},"content":{"rendered":"\n

The term \u201cdisposable income\u201d is something of a misnomer. It sounds like fun money, but it\u2019s quite the opposite. Also known as disposable personal income (DPI) or \u201ctake-home pay,\u201d disposable income<\/a>, is the amount of money available after taxes and other employee deductions have been taken out of your paycheck. It\u2019s not truly \u201cdisposable\u201d because it has to cover your family\u2019s most essential needs each month.<\/p>\n\n\n\n

So why is disposable income so important? On a national level, it\u2019s used to measure consumer spending and the health of the economy. On a personal level, it\u2019s often a critical factor in determining your family\u2019s financial resources. <\/p>\n\n\n\n

Let\u2019s take a closer look at disposable income to learn more about what it is, what it isn\u2019t, and how to use it as the basis for your household budget<\/a>. <\/p>\n\n\n\n

Disposable Vs. Discretionary Income<\/h2>\n\n\n\n

Disposable income is the money you have left over after taxes to pay for necessities such as rent or mortgage, transportation, groceries, utilities, insurance premiums, and other essential costs. <\/p>\n\n\n\n

Discretionary income<\/a>, a subset of disposable income, is the amount of money you have left over after<\/em> you\u2019ve paid for all the above necessities. It\u2019s up to you to how to use your discretionary income\u2014you can save it, spend it, invest it, or some combination of the three. <\/p>\n\n\n\n

According to freelance writer and ThoughtCo<\/a> contributor Robert Longley, disposable income and discretionary income are two of the most important terms in the world of personal finance. \u201cUnderstanding what disposable income and discretionary income are and how they differ is the key to creating and living comfortably within a manageable budget,\u201d he explains.<\/p>\n\n\n\n

Budgeting your Disposable Income<\/h2>\n\n\n\n

There are many different budgeting methods<\/a> out there, and the one that\u2019s best for you and your household might be quite different from that of a friend or family member. However, many experts agree that the 50\/30\/20 method<\/a> is a great option for new budgeters, as well as those who don\u2019t necessarily want to get into the nitty-gritty of tracking spending via multiple categories. <\/p>\n\n\n\n

With the 50\/30\/20 method, you only have to manage three broad spending categories:<\/p>\n\n\n\n