Disposable Income Mistakes to Avoid

In this policy, the investment risk in the investment portfolio is borne by the policyholder

As individuals who are employed or self-employed in the economy, we receive a certain limited amount of funds in routine intervals. Those who are employed, receive a monthly salary. For those who are entrepreneurs or are self-employed, the interval might be larger, but the basic concept still applies; We receive a limited amount of funds which we have to make the most of.

Usually, we divide these funds up into smaller allocation segments. First, the most important and urgent matters are dealt with, such as rent, groceries, various bills etc. Once these are dealt with, the secondary things are catered to such as premiums on any insurance plans you may have taken or allocating money for investments. And finally, after you have accounted for all your needs, what you are left with is your disposable income. Disposable income is the amount you have left after you have paid all your dues, and individuals usually employ this amount to cater to wants, needs and luxuries that are not necessities.

In this article, let’s take a look at what NOT to do with your disposable income.

Disposable Income Mistakes to Avoid

Allocating too much to disposable income

Technically, your disposable income is money that you have left after you have accounted for your savings as well. Since, unlike your salary, your savings do not have a fixed amount and is up to you to determine, this leaves a tricky task behind deciding how much you want to spend.

If you spend your disposable income on luxuries such as dining outside, frequent cinema visits and other shopping, then allocating too much to your disposable income might cost you in the long run, since you are effectively eating into your savings by doing so. If you were to cut down on this splurging and save more, you are likely to be in the better financial condition in the future.

Spending without properly budgeting

While we might have separated our discretionary income (the income you have to expanded on necessities and wants) from your disposable income, it is still necessary to further budget your disposable income, ensuring you know how much you are allocating, towards what you are allocating, and whether the right amount of disposable income is being allocated.

For instance, if you were to allocate 60% of your disposable income to eating dinner out once a week, and you have not budgeted further, you might find yourself in a situation wherein you are in need (or want) of disposable income but find you have already spent it all.

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Not Accounting for Emergencies

Having a disposable income is only beneficial to you if you are in good health to be able to enjoy the luxuries you can purchase with it. Reducing your disposal income pool a little bit in order to fund the purchase of health or medical insurance could save you a large amount of money in the future due to the medical cover you will receive.

For instance, you could allocate some income to purchasing the HDFC Life Click 2 Protect Life, which might afford you less disposable income in the short run but have more upsides in the long run.

Conclusion

If you are a young investor in your 20s, then you are in a beneficial position to invest or save a majority of your income as it is likely that you do not have many liabilities. While we all want additional disposable income to afford us immediate gratification, showing restraint and investing your disposable income in the short run could save you a lot of time, worry and money in the long run.

Allocating resources to more important investments such as the HDFC Life Click 2 Wealth as a much larger upside in the long run, than a larger pool of disposable income in the short run does.

ARN: ED/10/21/25904