Looking at your monthly expenses might give you the heebie-jeebies. But — trust us — it’s better to know than to not! Having a firm grasp of how much disposable income you should have is essential to avoid overspending, ensuring you have money left over for things you enjoy.
Technically, disposable income is defined as the amount of money you take home after taxes. However, the reality is that there are essential costs deducted from your after-tax earnings that impact the amount you have left over to use as you wish.
Your rent or mortgage, bills, transport and insurance are all expenses you can’t skirt around paying for. Plus, you’ll want to put aside money for savings, such as your pension or towards a big purchase like a house deposit.
With all of this considered, how much disposable income should you have set aside towards things you enjoy, like eating out with friends, taking a day trip out of town or subscribing to entertainment services like Netflix?
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How much of your salary should be disposable income? The 50-30-20 rule
To calculate how much disposable income you should have based on your salary, there’s a general rule of thumb you can follow. It’s called the 50-30-20 rule.
Under the 50-30-20 rule, you divide up your income into three chunks. 50% is allocated to essential items, 20% goes towards savings and 30% is spent on living your life — i.e. your disposable income.
Here’s an example to show you how the 50-30-20 rule works in practice.
Let’s imagine your take-home pay (after tax) is £2,000 GBP. Under the 50-30-20 rule, you should split this as follows:
- 50% on essentials: £1,000 GBP — This is for items that you absolutely need to pay each month, such as rent, bills, food, commuting and insurance.
- 30% is disposable income: £600 GBP — This goes towards your lifestyle choices, such as eating out, shopping, hobbies, entertainment and other items and activities you enjoy, but don’t need to make it through the month.
- 20% goes towards savings: £400 GBP — This includes pension payments, debt repayments and adding money to a savings account.
How much disposable income should you have per month?
The 50-30-20 rule is all well and good for establishing an estimate of where your earnings should go. But how much disposable income should you aim to have in 2023 to enjoy a decent lifestyle? This is a worry for many people right now. Living costs are rising, so what was considered a good wedge of disposable income a couple of years ago won’t go as far in 2023. How much disposable income you should have per month largely depends on where you live. Living costs vary greatly depending on the country, region and city, from as low as £650 GBP per month up to over £3,250 GBP per month. To find out the cost of living and how much your disposable income should be, you can use Numbeo’s cost of living index by searching your town or city.
Calculating how much disposable income you have
Using the 50-30-20 rule and the cost of living index, you should have a good idea of how much disposable income you need. Next, we’ll go through calculating how much disposable income you actually have based on your monthly spending.
To do this accurately, you’ll need information on your rent, bills, insurance, repayments, savings and any other monthly outgoings, such as subscriptions and gym memberships. Looking through your outgoing spending might not be the most thrilling activity, but it’s a crucial step to ensure you’re allocating your earnings wisely and see if there’s anything you could cut back on.
If this sounds complicated, try using an online calculator by simply searching ‘disposable income calculator’.
Tally everything up, and make sure you’re realistic and don’t exclude anything. What’s your total monthly spending amount? Deduct this from your monthly take-home earnings. How much is left over? This leftover amount is the realistic disposable income you have each month.
If it’s not meeting the 50-30-20 rule or your ideal disposable income for the cost of living in your area, it’s time to consider if there’s anything you might be able to cut back on. While you obviously have to pay your rent and bills, if there are optional monthly outgoings, such as premium subscription services, you could rethink whether you need these.
How to track your disposable income (and save money!)
Now that you know how much disposable income you should have, tracking your spending is important to check you’re staying in line with your budget and not overspending. It will also show you where to cut down on items you don’t need if they’re too costly.
Budgeting apps are an easy solution for this. They show you exactly where your spending is going and can help you save money. Click here to discover the best budgeting apps of 2023 and start tracking your disposable income and spending.
To take it one step further, there are even apps that actively save you money on your disposable income spending. You can get discounts on groceries, transport, clothes, electricals, entertainment, holidays — pretty much anything you can think of.
We’ve rounded up the best money-saving apps of 2023 to help your disposable income go further — click here to read more.
Subscription Panda helps you track your subscription spending AND make savings. Easily sign up to monitor all your subscription spending in one place, including games, movies and TV, music, food, magazines and more. You’ll gain exclusive access to subscription discounts so that your disposable income can go towards more of the services you love.