Your daily disposable income (DDI) is the money you have available to spend after your financial obligations, including fixed expenses and taxes, are met. In such a financially unstable environment, spending less and saving more is extremely important for your financial health. Therefore, you should be really cautious when calculating your disposable income so that you budget wisely.
The following is an effective method to determine your daily disposable income.
1. Calculate your total monthly net income
Multiply your paychecks by the number of pay periods per year and divide by 12. For instance, if you get paid a biweekly paycheck of $1,800, multiply $1,800 x 26 times = $46,800 and divide by 12. $46,800 / 12 = $3,900 is your monthly net income. If there are multiple income streams, add them up to calculate how much money you earn on a monthly basis.
If you are not self-employed, it means that the paychecks you bring home are calculated after tax. This is a good starting point for calculating real disposable income. However, if you are self-employed, calculating real disposable income is more complex. You need to estimate your tax burden based on your tax bracket and income and then subtract this amount from your take-home monthly paycheck to find real disposable income.
2. Calculate your monthly fixed expenses
Make a list of your monthly fixed expenses, including rent or mortgage, utilities, credit card payments, loans, savings, car insurance, health insurance and any other financial obligation you have each month. Be very careful about identifying your monthly expenses and make sure to include property tax payments, household maintenance, car repair bills, vacations and holidays if such expenses are incurred a particular month.
3. Calculate your daily disposable income
Subtract your monthly fixed expenses from your monthly net income. For instance, if your monthly net income is $3,900 and your fixed expenses are $2,200, your monthly disposable income is $3,900 – $2,200 = $1,700. To calculate your daily disposable income, multiply $1,700 x 12 = $20,400 and divide by 365 = $55.89. So, based on your total monthly net income and total fixed expenses, your real daily disposable income is $55.89. This is the amount of money you can use as you like.
Keeping track of your spending by creating a budget for your money is a wise thing to do. By calculating your daily disposable income you know how much money you can really spend daily based on your income and expenses. You may know it hypothetically or approximately, but by putting numbers on paper you can set a target amount you can spend each day after your financial obligations are taken into consideration. If you spend more than this target amount you need to cut back on spending. But, at least, knowing your real disposable income your can spend and save wisely, helping yourself to achieve your financial goals.