There are so many questions regarding the topic of disposable income. These questions include, what is disposable income, how to increase my disposable income and even how to calculate it. Today, I’m going to be addressing these questions and more. After reading this article you will feel like an expert in this topic.
The truth is the real number you should be looking at the end of each month is what is your disposable income.
Before you read any further, we must define what a disposable income even is. In short, disposable income is the money you have after taxes and social security. Aka what is your take home amount every month.
What is the Formula for Disposable Income?
You are probably wondering how to calculate your disposable income, or is there a special formula for disposable income. The calculation for disposable income is actually pretty simple:
Personal income – Personal Income Taxes = Disposable Income
How to increase your disposable income
Now that you’ve calculated your disposable income you probably want to increase it. How do you increase your disposable income? There are actually 2 very different approaches to increasing your disposable income, the first is ask for a raise or switch jobs and the second is to add additional income.
Ask for a raise. Yup you read that correctly, ask for more money from your current employer. I’m not saying you can go in tomorrow and ask for a raise, you need to be a little more strategic about it. This one takes about 6-12 months to accomplish.
Set up a meeting with your boss, ask how you can be a high performing employee and discuss if you reach those goals you’d like to talk about a raise. Keep your boss updated with the process you’re making. At the end of the 6 months make sure you’ve met or exceeded your goals and then ask for the raise. Don’t forget to do market research to figure out how much your position is worth beforehand.
Switch jobs – The truth is very few people are loyal to companies. One of the easiest ways to increase your disposable income is to look for a new job that pays more. The most common reason people switch jobs is because many perks have been eliminated. These eliminated perks such as pensions, extra perks, even things like 401k matching is going away temporarily in the corona crisis.. With that being said you need to relay on a high salary and to do this many times you need to switch jobs. I recommend switching jobs every 4 years.
In short, the easiest way to remember what is disposable income is the money you have after taxes. Think of it like your take home amount for the week, month, year. The formula for disposable income is easily calculated by (Personal income – Personal Income Taxes = Disposable Income). The fastest way to increase your disposable income is to ask for a raise, switch jobs, or do side hustle to generate more income.
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