Disposable Income and Budgeting

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Financial Planning - Investment Management - Pension Planning - Estate Planning

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Are you addicted to plastic? Is it easy to swipe the debit or credit card? Do you check your bank balance and wonder where it all went? Ever heard of disposable income?

You might think that as a high net-worth individual, you don’t need a budget, but no matter how wealthy you are, everyone needs to budget and watch their spending. Do you even know how much of your disposable income you spend a month?

What is Disposable Income?

This is the amount of money an individual has left to spend or save after taxes. It includes necessary spending like food, rent, and luxury and leisure (discretionary spending) like eating out, travel, etc.

In this case, we refer to luxury and leisure (discretionary spending).

Discretionary Spending

This is the money you have left after paying for everything essential. It is usually used for savings, luxury, and leisure spending.

The graph below shows the average prices of a daily Starbucks cappuccino, a light lunch, a medium-range dinner twice a week and a pint of beer once a week.

CityStarbucks CappuccinoTotal 20 daysAverage lunchTotal 20 daysDinner for two at medium price restaurantTotal eight daysPint of beerTotal four days
Hong Kong£3.20£64£10.00£200£50£400£5£20

That’s £343 a month spent on coffee and lunch if you live in Dubai. If you add dinner for two twice a week, it adds up to over £700 a month.

Do you have a rainy-day fund for emergencies and unforeseen expenses? Part of your disposable income could go towards that, so you won’t have to use credit for emergency expenses.

Taking half of that amount (£350) and putting it into a diversified private pension, earning an average of 7% p.a. could give you £183,000 over 20 years. That’s a significant boost to retirement savings.

Your disposable income could help pay off high-interest debt quicker and significantly boost retirement savings. One can never have enough saved for your golden years. With the cost of living increasing and people living longer, retirement savings are shrinking every year and might not be enough to fund the lifestyle you want at retirement.

The Importance of Disposable Income

Disposable income is vital for any professional. It provides financial flexibility and options.

It allows for a higher standard of living and savings and investments essential for building wealth, retirement savings, and financial security.

A financial advisor can assist with drawing up a suitable budget for your disposable income that allows for saving and investing as well as luxury and leisure expenses.

Please note, the above is for education purposes only and does not constitute advice. You should always contact your adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.


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