When you are bringing in a steady paycheck, have paid up all your bills for the month and set aside some money for savings, you still need to manage your budget and spend your disposable income wisely. Learning how to manage your disposable income will help you enjoy a higher quality of life and prevent the need from dipping into your savings account for everyday purchases.
The technical definition of a disposable income is your personal income minus your personal taxes, but it should really be the amount you have left over after all of your bills have been paid, and the amount you have after you have stashed away some of your money in a savings account. Here are some important tips for managing your disposable income:
The technical definition of a disposable income is your personal income minus your personal taxes, but it should really be the amount you have left over after all of your bills have been paid, and the amount you have after you have stashed away some of your money in a savings account. Here are some important tips for managing your disposable income:
Prioritize Your Non-Essential Purchases
Even though you may have extra funds for little luxuries, non-essentials and gifts, keep spending under control by prioritizing your expenses. Your disposable income can still be a part of your monthly cash flow, and might change a lot from one month to another, depending on what bills you are responsible for paying over a particular month. Prioritize even your “wants” so that you can set aside enough money to pay for these items without using money from your savings.
Spend Some on Debt
If you are finding that you have a fairly high amount of disposable income available month after month, consider allocating some towards your debts. Start paying down your credit cards, loans and other types of debts as quickly as possible so that you can put yourself in a stronger financial position. You don’t have to contribute all of your disposable income to these balances, but just a little more than you usually pay each month can help you pay down debt much faster.
Create Another Savings Account
Even though you might have a savings account, you can create a sub-savings account or whole new savings account for something you have had your eye on. Maybe you want a new computer, want to go on a trip, or want to buy a car. Whatever the item is, be very specific about what you want, find out exactly how much it is going to cost, and then create a savings account just for that item. Start putting some or all of your monthly disposable income into this account. Being specific about what you are saving for can help you stay motivated and stay on track with your savings goal.
Knowing how to manage your disposable income and having a plan can help you keep your finances in good shape and ensure your cash flow stays on the positive side. Being frivolous with your money is a bad money habit, no matter how much you earn. Keeping track of your purchases and knowing where your money is going is essential for financial stability and your peace of mind when it comes to money. Be a conscientious spender and put your disposable income to good use with these simple tips!
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