Disposable Income

Increasing one's disposable income is a primary financial goal for many Americans. As disposable income grows, paying bills, saving money, investing, and planning large purchases become easier.

But what is disposable income? How do you calculate it? And how much disposable income should you have? Read on to learn the definition of disposable income and how it works.

What is disposable income?

The basic definition of disposable income is the income you have left after paying taxes. Essentially, it’s the amount of money your household has available to spend or save.

Your personal net income – or take-home pay – also refers to your disposable income. If you’ve ever created a budget, you’ve had to calculate your disposable personal income (DPI) to determine how much money to put toward purchases, debt repayment, and savings.

How to calculate disposable income

To calculate your disposable income, subtract your income taxes from your annual gross income. Gross income is your total pay before taxes and deductions. The amount remaining is your net income, or disposable income.

For example, let’s say you earn $65,000, and your tax rate is 22%. Your calculations would be as follows:

$65,000 - ($65,000 x 22%) = $50,700

Since your taxes equal $14,300, your annual disposable personal income is $50,700.

Disposable income vs. discretionary income

You might see the term “discretionary income” used interchangeably with “disposable income,” but they’re not the same thing. Disposable income exists independently of discretionary income, whereas discretionary income is derived from disposable income.

Discretionary income refers to your disposable income minus the amount that goes toward necessities. In other words, your discretionary income is what you have left after paying taxes and paying for groceries, gas, insurance, utilities, and housing.

Discretionary income suffers the most after a pay reduction or job loss. During a recession, people are less likely to buy discretionary goods, such as vacations, jewelry, and other luxury items, which, in turn, can cause certain businesses to suffer.

When an individual or household has a higher amount of discretionary income, they’re more likely to spend it, putting money back into the economy. As such, discretionary income is a driving indicator of economic health.

What can disposable income be used for?

You can use your disposable income to pay for anything – within your budget, of course! Common uses of disposable income include:

Rent or mortgage

If you’re like most Americans, a large portion of your disposable income goes toward housing. In fact, the 2019 average monthly housing costs for renters accounted for 30% of their household income. That figure was 19% for homeowners. Homeowners also have to account for higher utility bills, home repairs, and property taxes.

Paying off debt

Disposable income also goes toward debt repayment. The more debt you’ve accrued, the less discretionary income you’ll have. If you have a lot of high-interest debt, you might consider applying for a personal loan to consolidate your debts and make it easier to repay what you owe.


Financial experts typically suggest budgeting 10 to 15% of your disposable income for food.

Using the previously mentioned calculation as an example, let’s say you have $50,700 in disposable income and aim to budget 12% for groceries, dining out, and takeout. That comes to $6,084 per year, or $507 a month.


You’ll also use a portion of your disposable income to pay non-debt-repayment bills (such as childcare) and utility bills. Utility bills include phone and internet technologies, cable, electricity, water, and trash and recycling.


Even if your disposable income feels stretched thin, it’s important to build your savings so that you have some money to fall back on if the unexpected happens. The savings category should also include retirement planning and investments.

Ways to supplement your disposable income

Whether you’re starting out on your financial journey, or you’ve experienced a financial setback, you may be looking to supplement your disposable income. Here are a few options worth considering:

Get a side hustle

Side hustles are popular for a good reason. They allow you to earn extra money in your spare time – and there’s a side hustle out there for just about anyone.

Common examples include offering pet-sitting services, taking online surveys, being a personal shopper, and driving for food delivery or ride-share apps.

Sell unused items

Getting rid of stuff that you don’t need frees up space and spending money, so it’s a win-win!

Websites and apps like Poshmark, thredUP, and Swap.com are great for off-loading high-quality, gently used clothing and accessories, while eBay is a tried-and-true auction site for just about anything you can imagine. If you’d rather not sell items online, organize a yard sale or inquire about local consignment shops.

Get a loan

No matter how solid your budget is, there may be times when you’re faced with a medical bill, car repair, or other unexpected expense that catches you off guard.

Fortunately, there are many options for borrowing money. For example, a payday loan is a short-term solution that gives you access to the money you need before payday. Borrow what you need to cover the expense and pay it back with your next paycheck.

Ask family and friends for help

Asking a friend or family member for money is never easy, but it might be your only option. Even so, you should have a repayment plan ready when approaching them, so they know you are committed to paying them back.

Get an Advance America loan to supplement your disposable income

Increasing your disposable income is a long game. It often requires changing careers, landing a promotion, taking a second job, or furthering your education, which can take years!

When you need to supplement your disposable income now, Advance America can help. Whether you need a personal loan or a line of credit, we’ve got options. Apply today!

The Advance America advantage

Since 1997, Advance America has helped millions of hardworking people with a variety of financial solutions including Payday Loans, Online Loans, Installment Loans, Title Loans and Personal Lines of Credit.
157+ million
loans issued
800+ stores
and online loans
25+ years
providing loans