Disposable income. The amount of money someone could spend on voluntary or non-essential costs. You know, the money that’s leftover after you’ve paid taxes, paid your bills, and paid yourself. In our house, we think of it as fun money. My grandma loved to call it her mad money. Whatever it’s called, it’s money that can be spent, no harm, no foul.
This past weekend, I was catching up on my favorite podcasts as I paddle boarded across the lake, and I nearly sent my phone to its watery grave in an effort to re-listen to something I surely misheard. I had already seen enough tweets and references to the Tim Ferriss episode “How to ‘Waste Money’ To Improve the Quality of Your Life”, so I thought I already got the gist of it. But I wanted to give it a listen regardless*. What the rest of the Twitter-verse didn’t tell me was the number he uses in his hypothetical number crunching. Hold onto your iPhones, folks.
$5,000. $5,000 in disposable income a month. You guys, I don’t take home $5,000 a month total. My husband and I don’t budget $5,000 a year in disposable income. Maybe I misheard. Surely, I misheard. I mean, I know the Four Hour Work Week is a huge thing, but what? You’re talking to the masses and that’s your baseline? Now, he quickly points out that this isn’t for people who are in college or barely affording their rent. He says it’s only prudent for people who have hit a level up. A level up to what? Not the middle class, that’s for sure. Or maybe they don’t own homes. Or pay rent. Or eat.
This got me thinking. What salary would I have to earn to come up with $5,000 a month in disposable spending? Though an oversimplification of most people’s budgets — and certainly not the most efficient way to pursue financial independence — the 50/20/30 budget rule seemed like a good jumping off point. 50% of your income goes to the essentials. 20% goes to savings. 30% is nonessential. Ding, ding, ding. Disposable. Let’s say I’m willing to burn 30% of my income. I’m not. But let’s roll with it for now. I would have to net $16,500 a month to come up with $5,000 in disposable spending following this budgeting model.
The podcast ultimately shifts to things like business versus economy class plane tickets, cleaning services, and other ways to maximize productivity, preserve your health…and presumably continue earning $200,000 a year after taxes. To be clear, I don’t dislike the idea of being efficient with your time and leveraging your money to do so. I love that idea. I’m just puzzled over that number and the repercussions attached to it. Maybe his legions of fans would settle on the fact that he chose that number at random because it was a nice, round sum. Maybe they’d say he was just spitballing. Maybe they would understand it as though he was talking to wealthy people as an equally wealthy person.
Or maybe his listeners would simply glom onto the notion that disposable income is a way to make life easier, make themselves more successful, and make themselves efficient to the point that they can 10x each day. And that’s dangerous. I get it. Wealthy people exist. Their portfolios are pimped, their retirements are planned, their money is theirs for the spending. I’m fine with that. But there’s nothing average about that.
The average American is the person who couldn’t come up with $400 in an emergency, the person who might be stymied by budgets, investing, and retirement savings. That American is someone who is weighed down not just by student loans and mortgages, but also by an average of $15,000 in consumer debt. That American doesn’t need to find inspiration in four-figure monthly disposable spending to improve the quality of his or her life. That American needs to find inspiration in debt repayment and saving for the future. While everyone is certainly entitled to fun money and the occasional splurge, that $5000 monthly amount should be anything but average when it comes to disposable income.
*You should totally check out the episode. And all of his podcasts. They’re fun mental exercises.
So Tell Me…How does that $5,000 figure sit with you? What’s your favorite way to “waste” your money?