ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Disposable Income: The Easy Way to Get More Money

Updated on October 29, 2015
drpennypincher profile image

Dr. Penny Pincher founded the popular personal finance blog Penny Pincher Journal in 2013 and has published two books about saving money.

What is Disposable Income?
What is Disposable Income? | Source

Disposable Income

I was thinking about the term “disposable income” today when I was throwing some of my money away. Well, I was not throwing the money away directly, but I was buying some garbage bags which I was then going to throw away. I started thinking about how stupid it is to buy something that you intend to throw away. In some ways it would be more efficient to simply throw the money away- this would avoid consuming all of the resources required to produce the garbage bags, ship them to the store and I could save the time and gas it takes to drive to the store to buy them. The only downside of just throwing the money instead of buying garbage bags is that I still need a way to contain my garbage when throwing it away. So I went ahead and bought the garbage bags and continued thinking about disposable income.

Disposable income is a widely misunderstood term of economics. My first thought would be that disposable income is money that you have left to spend after you have paid all of your bills- but that is not correct. The definition of disposable income is money that you have left after paying your taxes. Since most people pay around 40% of their income to taxes, this leaves 60% of your income as disposable income for almost everyone. Since I misunderstood the definition of disposable income, I have a lot more disposable income than I thought!

What most people think of as “disposable income” is actually known as “discretionary income”. Discretionary income is how much of your income you have left after paying your taxes and bills. Discretionary income varies a lot among people depending on how big your bills and spending patterns.

How Can You Increase Disposable Income?

Since disposable income is how much income you have left after taxes, there are two ways you can increase your disposable income:

1. Reduce your tax bill: I use a professional accountant to do my taxes to make sure I get all of the deductions and pay the lowest taxes possible. This costs about $300 and I realize that I could do it myself for much less, but I am confident that the accountant is saving me money on taxes by finding all of the legal deductions. You can also reduce your tax bill through certain types of donations. I donate items to Goodwill and get a tax deduction every year.

2. Increase your income: You can try to get a raise at work by performing well or simply asking for a raise. You can also get training or education and try to get a higher paying job.

Increase your Disposable Income!
Increase your Disposable Income! | Source

How Can You Increase Your Discretionary Income?

OK, so let’s say you’re making as much income as you can and you’re paying the lowest amount of taxes that you can. This means your disposable income is maximized. Now, how can you increase your discretionary income? The good news is that this is probably much easier than increasing your disposable income. The key to increasing your discretionary is to reduce your bills and reducing your spending.

I usually think about reducing spending by breaking spending into two categories. There are big bills that are pretty difficult to change. Bills like your mortgage, car payment, and student loan payments. There are ways to reduce these big expenses, but this usually requires a major action such as moving to a smaller house, or selling your car and buying an older one. You may be able to consolidate your student loans and save money on your payment.

The next category of expenses is easier to deal with. Everyone has expenses they can cut with a little planning and work. People get into the habit of spending money and don’t even notice it. Did you buy coffee today? If you simply make your own coffee at home instead of buying coffee at a coffee shop, you can save around $600 per year. Do you buy magazines and newspapers? Would you miss them if you cut a few of ones you don’t always have time to read? The list of ways to cut your expenses goes on and on- it is worth spending some time to think about ways you could cut back on spending.

How does spending less increase your discretionary income? If you have more cash available every month to pay down your credit cards, loans, and other bills, you reduce the amount you have to spend each month and have more money available to save or invest. Plus, when you invest money you get a return which produces more income for you. This cycle leads to more and more discretionary income.

Buying Garbage Bags Got Me Thinking About Disposable Income
Buying Garbage Bags Got Me Thinking About Disposable Income | Source

Stop Disposing Of Your Income!

One way to cut down on unnecessary spending is to spend cash rather than buying things with a credit card. It is so much easier to spend money using credit cards because it does not feel like real money. If you have to hand over actually paper currency and see your wallet getting thinner, you are less likely to buy things you don’t really need. Another way to spend less money is to try to get more use out of things that you do buy. I am going to try to get more things in each garbage bag so I can use less of them. This will not only save money, but conserve resources as well.

Paying interest on loans is often an expense that can be reduced. Of course the best way to reduce interest expenses is to reduce the balance on your loans. You can also try to find lower interest loans, expeciallyif you have credit cards with high interest rates.

Find ways to hang on to more of your income by looking at your spending and finding things you are buying that are disposing of your money without providing much value to you. Start cutting unnecessary spending and keep track of how much you save. Spending habits can be learned, but saving habits can be learned as well.

© 2015 Dr Penny Pincher

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)