Tuesday 8 October 2013

Salary vs. discretionary income

" A bit of Finance 101"



One of the ways we measure our financial success (and, in some cases, success as a person) in our society is to look at our salary. However, just looking at your salary provides an incomplete picture or your financial situation. This is because your salary does not always provide an accurate representation of how much discretionary income you have.
Discretionary Income
In the most traditional sense, disposable income is meant by what you bring home for saving or spending after taxes are paid. Discretionary income takes it a bit further, including what you have at your disposal for saving or enjoyment after you have made your credit card payments, your housing payments, loan payments (such as a car loan or student loan), your utility bills, insurance and maybe even your groceries. If you have money automatically deducted from your paycheck for savings or retirement investing, this is also taken out before you calculate your discretionary income.
Discretionary income is what you have the freedom to spend as you wish, on things that you enjoy, rather than on bills and other obligations that may not give you much pleasure. In terms of personal finances, I believe that discretionary income offers a better picture of your situation than your salary.
Factors that influence discretionary income
Yes, your salary is related to your disposable income. But what you have left over from your salary to use as you wish depends on a number of other factors, including:
Cost of housing.
Cost of transportation.
How much debt you have.
Cost of food in your local area.
Expense of your utilities
These items, and others, that influence discretionary income can vary, depending on where you live. My husband’s cousin recently complained that his salary is smaller since he moved to our town in Utah, than the salary he had where he used to live in California. My husband and I asked him, though, to take a step back and look at his discretionary income

- BDay

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