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?
AHAHAHAHAHAHAHAHAHAHAHAHAHA oh my god having seen this going around, but not knowing the amount, this was the best read ever.
$5000 A MONTH?! I just got a raise to the amount that I used to think would mean I had “totally made it in life” and literally do not even take home that much money in a month. And I currently feel like I am swimming in money.
$5000 A MONTH.
I cannot tell you how many times I used the “rewind” button to figure out if I was losing my mind. So many people latched on to the mental exercise, but I couldn’t believe no one was talking about THAT number.
^^^ What she said.
Man, how quickly could I kill my mortgage with another $5k a month?!
Current fav way to waste money… Stuff for the dogs :p
That was all I could think of! All the extra mortgage payments, oh my!
I’ll have to listen to the podcast but I’m not a big fan of wasting any money…$500 or $5,000!
I actually really liked the point of the exercise. An abundance mindset can help you preserve your time, a nonrenewable resource. But the numbers seemed way off!
Wow. $5000 per month is $60,000 per year. That is more than the median household earns before taxes. I haven’t listened to the episode yet (I am behind in my podcast listening!) so I can’t speak to the context, but from what you’ve said I have the same concern. Giving a number that high could send a dangerous signal to people, especially where the majority of his audience is probably not well-steeped in the personal finance world.
It’s a great episode because it’s bite size! But I do think the number is misleading.
I’m a full-time physician who has paid off all her student loans, and my total monthly budget (savings excluded) doesn’t reach $5000. I would be living a ridiculously silly life of luxury if I was spending $5000 a month on discretionary things! I could lease two Porsches for less than that!
(I drive a banged up, paid off, seven year old Corolla)
Yay, Toyota! My baby (Camry) turned 6, and I plan on driving it into the ground. That’s really interesting to me that someone who is a high earner even sees this number as staggering.
Vote #3 for older Toyotas! Mine is blue and makes me very happy.
I’m a doc too, and the best thing I could think of doing with $5000/month is saving it and reaching FIRE earlier.
Yes, spending money can save time and effort, but we love DIY and the process of learning new skills. If we have the time, then these tasks are our hobbies, not our gruntwork.
He made a really compelling point. He opts for business class on international flights because he can actually sleep and is more productive when he gets to his destination. I could see that being true for people on a smaller scale (we have a monthly cleaning service). But $5,000 seems high.
I’m sure I have colleagues who wouldn’t think that $5000 a month is a ridiculous number, but I grew up in a pretty frugal middle class household, so I’m not one of them. Even with spending way less than that, I feel like I’m living a really indulgent life in which I’m not depriving myself of anything that I really want. And like Julie, I am far happier with money going towards retirement than frivolous spending.
Reading the first part of that sentence actually made my palms sweat. I am so glad I’m a teacher! Listening to my co-workers talk about spending $400 on StitchFix is already too rich for my blood!
Oh, geez. $5000 seems so out of touch when the average household income is something like $48,000 per year.
And I get that he’s not talking to the “everyman” necessarily. But that’s still a lofty number, IMHO.
$5000 a month is kind of out of touch. I watch TV at the gym, and every once in a while, I see the publishers clearing house sweepstakes commercial. People win $5000 a week for life. I have no desire to win the lottery, but $5000 a week would be pretty sweet. That could provide the $5000 in disposable income. Or in my case $17,000 in disposable income. =)
Ha! That’s a great comparison, Ms. Montana.
I think he’s a rich person talking to other rich people. I don’t expect a CEO making $300,000 with stock options to spend the same way as a graphic designer making $55,000 would.
Although I think it is in poor taste to talk about this on a mainstream podcast. Why not teach through a podcast how to build wealth? I’d prefer that over a fantasy scenario. =)
He doesn’t usually/always talk like that, though. That’s part of why I listen. I feel like they’re supposed to be mineable for everyone. The most fascinating part of his podcasts, though, is how often he alludes to having money personally but never really addresses it head on. I’m always so curious about his net worth!
$5000 is about 20,000 a month in my local currency. Although that’s also way above medium income, I see people around me doing it. Splurging on branded bags or good meals every day. I guess there are enough % of people who could relate to him. Likes-attract-likes after all.
His is actually my favorite podcast. But there are many instances where he and I take an opposite viewpoint! It’s really interesting to me to see how many people in the FIRE/PF world like him since his views can be so contrarian. Good point about the eating out and designer items!
Definitely an outrageous amount. My yearly salary barely inches over that, and that’s before any taxes and pre-tax investments. Pretty crazy he used that number. For me, disposable spending is more around $200 – $300 but I’ll spend this on something I need or an unforeseen event. For example, this month I spent $250 on a good ski jacket since we have a trip planned for December. I decided to spring for a higher quality jacket since I’d rather guarantee being warm and waterproof. Anyway, the next month I’ll try to lower my spending to make up for the purchase.
Same boat. We have $300 in the budget for spending. But that covers a variety of things that fluctuate – from doctor visit co-pays to highlights for my hair. I’m sure if I looked harder at my budget, I would have to acquiesce that cell phones and internet/tv are actually disposable income. So maybe I spend more than I think?!
Well the flip side is you are comfortable spending whatever amount on those services and you are choosing to do so vs. being okay spending 5 grand on anything that comes up.
That’s an interesting way to look at it!
Well, now I’m intrigued. I do enjoy his podcasts, but haven’t listened to this one.
I don’t think I could possibly spend $5000/month in disposable income!?!? It’s not in my blood. But, then, maybe I would get used to it? But isn’t that dangerous!?
I don’t want to spoil the episode, but I will say this mental exercise starts in the second half. It’s worth the listen. I always worry about slippery slopes, but I have little willpower in a lot of situations.
I net more than that – I save about $4,000/month and spend $4,000. I laughed because $5,000/month of disposable income is laughable even at my income level. I don’t feel like my savings is disposable income, so I would need to earn a LOT more in order to get that much disposable income. That is just insane.
So glad you shared, Leigh. Good to know it’s not just my perspective based on my income. Seems off until you’re pretty high up there! More than one level up for sure 😉
That’s pretty mind boggling. Definitely not in touch with reality for most people.
I hope that’s the case, TJ. I’m so nervous that it’s reflective (to a smaller degree) of our out-of-touch we are with what actually should be considered disposable income. I want to think more frugal minds prevail.
I was just thinking today what I would do with all of the “extra” $$ that I contribute to my retirement accounts. Would spending it on outsourcing XYZ actually make my life better, or easier? What would I spend it on – lawn mowing, cleaning service, professional chef, masseuse? I’ll have to check out the episode – his philosophy intrigues me, but I’ve never really bought in.
It’s a good one…and it’s short 🙂 I subscribe to the notion; I just object to the hypothetical number. If we’re talking numbers on that scale, there are other ways to improve quality of life (FIRE, for one).
Yeah, if I had $5,000/month in additional income, I would be able to FIRE and pay off the mortgage earlier. I doubt I would increase my lifestyle any further – it feels pretty inflated as it is.
It’s an interesting mental exercise, for sure. In my dreams, I’ll be able to test it out one day 😉
Two really well paid folks in the PIE household. Maxing 401k’s, HSA, deferred compensation plan, heavily funded 529 plans for boys, healthy savings amount to taxable accounts and the rest to pay the bills. I can guarantee that to have $5,000 disposable income, you ain’t doing any of the aforementioned saving. He is way off base.
Don’t even get me started on the BS he spouts on medical breakthroughs with his rogue scientists crew. Some stuff he does is good but this $5,000 disposable income nonsense is dumpster fire material.
Ha! I try not to take his word — or anyone’s — as gospel. I do think he’s an excellent example of what happens with very strategic self-promotion and work ethic. The dumpster comment made me snort. Thanks for the laugh this morning.
I can say that I likely officially have 5,000 or more in disposable income in a month. Right now I put more than that money away towards aggressive mortgage/401k payments. If I sat down and did the math to figure out what, say, 10% of my income was (to figure out a normal retirement savings number) then it’s quite likely that I would be over 5,000 when you added the excess.
Once the house is paid off next year, on a good month, we could even double that! It really has to be a combination of both good incomes and very low expenses. Our total income is 120,000 ish (clearly above the average income) and annual budget is around 30,000 for actual living. Everything above that is either paying taxes or savings.
I think that a large portion of the population who are working ‘frugal’ have a much higher disposable income than their peers so it makes sense to me that he would discuss 5,000. Just my , uh, .30 cents. 🙂
Thank for the .30 cents, Morgen. You’re right on with the high income/low expense combination. We’re currently lacking the high-income portion of the equation. I’m glad you commented — helps keep my perspective in check!
🙂
Well, and there is a difference between having 5,000 a month AND disposing of it or having 5,000 a month you COULD dispose of. I’m not sure which of the two he was thinking of.
😀
Tim Ferris is a genius marketer, but I feel like he’s a snake oil dealer. He never seems to count the relational costs of his proposed recommendations.
FYI- about 4% of households make more than $200K, so it’s not totally absurd I don’t think.
Oh, I like him so much…probably because my feelings change about him all the time. His self-promotion is so masterful. And the way he markets Stoicism. My undergrad should take a page from his playbook! I’d be most curious how that 4% overlaps with his demographic.
$5,000 in extra spending seems like a lot to me. I’m not sure I could “waste” that much no matter how much I earned. My hobbies just aren’t that expensive. I would guess we “waste” around $1,000 per month on a regular month for things like travel (we go on several tips each year), having my house cleaned every 4 weeks, and entertainment-type stuff with our friends and the kids. So probably $12,000 per year, and I’m okay with that.
I think it really depends on how you classify it. Travel bumps up my number, too. And I shell out $45-$90 a month to have my house cleaned. To his point, I can make that in 2 hours of tutoring, so I get it to some degree.
Is he talking level up? Really? Maybe he meant catapult up? I often feel like he’s in a laboratory, experimenting on brains and body parts trying to build a better human being. I get tired just listening. Then I think, I don’t want to be a perfect person. Maybe I’d be happier just being a slug.
Agreed! I don’t know how you feel about blood…but his videos where he has all this testing done on himself are awesomely insane. You feel that way because I think he really is. Sometimes, I listen to his podcasts and feel so energized. Other times, I have a newfound gratitude for being average.
At first I scoff, then I think, wait a second. I could hire a full time masseuse for that money. A massage every day – how much more functional would I be if I could be that on top of my pain? Probably not $100-150k more functional but if I were, you betcha I’d pay the equivalent to add that much extra. Of course that is a whole other side of the equation. Spending to ease your life to increase earnings is predicated on the assumption that you have a lot more earning potential that is elastic so far as your efforts. I can say that even in my best promotion and raises, I’ve not exceeded 30K in a single bump. And for perspective, I make good money now, as does PiC, so maybe if we weren’t also paying for childcare and essentially eldercare we could come up with almost that much in unpledged money. But it’d find a home really fast 🙂
$5000 a month sure is a lot of money.. I GROSS close to that number a year. I have no disposable income leftover after savings (I really live close to the edge because any mistake can put me up for failure in terms of cash flow). However, I have a 25k emergency portfolio that will keep me afloat if anything bad does happen. Hopefully that becomes enough.
Great post, just read the 4 hour work week. Sounds really great but what are the chances of actually being that successful. I can’t imagine how much stuff you would have to consume to use up 5k per month. Seems crazy. Keep up the good work.
Disposable income is defined as income after taxes. So it’s tough to really figure out what a person means when they are using different meanings of the same word. To you, disposable income is your money after important expenses and savings. To the guy on the podcast….who knows what it is.
But it’s not hard to find a family with thousands a month to spend. The necessities cost the same regardless of how much you make. A small family can comfortably live on around $3000-$4000 a month if they have no debt (That’s roughly my budget) and assuming they don’t live in san fran or nyc or somewhere similar.
Now consider a two income household of average workers earning the US average of 51,939. That’s roughly $104k before taxes and probably around 75k after taxes. That leaves around $39,000 a year “fun money” to play with. Sure, they should be saving a lot of it, but it’s an unfortunate fact that most Americans don’t save.
Instead, they inflate their lifestyle. Instead of a modest home, they go get a giant house and increase their mandatory budget to $4500 instead of $3000. Then add in a couple financed cars and now we’re at $5500 a month….and suddenly you have a “mandatory budget” that is nearly what you earn which leaves barely enough to save. If you add some savings into it, there is no money left for fun things.
Maybe this guy lives a modest life and chooses to fly business class and take expensive vacations.
Either way, it doesn’t take a millionaire to find $5,000 a month. Just a couple of slightly upper-middle class people that know how to live modestly, but don’t know how to save.
I think your income numbers are slightly confused. The U.S. MEDIAN for a HOUSEHOLD is 51,939 (2014 numbers). The U.S. median per worker is 32,140 (or in that range, after 25 years old).
Let’s assume two adults an a child.
The median household is paying perhaps 15% to state/fed/local taxes. – 7,800. (forgive my rounding).
Now 44,000 left.
Assuming a 10% retirement/savings contribution. – 4,400.
Now 39,700 left.
Employee contribution to an employer subsidized Heath care median: – 4,300
Now 35,400 left.
Median us rentals for a two bedroom: (1300 x 12) 15,600.
Now 19,800 left.
Utilties numbers are hard to come by but 200 per month for electric, gas, etc is conservative as a US median. (200*12) – 2400
Now 17,400.
Food for a family from three from the “low-cost plan’ put together by the USDA is (550*12) – 6600
Now 10,800.
That leaves 900 dollars a month. Which is quite a lot until you realize these THREE people have an apartment to live in but no clothing, utilities but no phone of any sort, high deductible health insurance but no rental insurance, life insurance, etc and perhaps no need for an automobile but also no way to pay for public transport.
If you double that beginning number then it is quite a bit easier. 😀 Because then it’s two families worth of earnings. That alone would result in a monthly overage of more than a thousand.
Would result in more than FOUR thousand in excess. 😀
I love Tim Ferriss and listen to him regularly. But part of the reason why I listen to him is to laugh. I would say about a third of his podcasts are suited to the average Joe and Jane. Most of his optimal-performance podcasts, however, are a joke. I missed the $5,000 disposable income episode. I’ll have to double-back on that one. Another one I put in this category was the one in which he visited Tony Robbins’s house and got inside some type of pressure machine. Now that’s something the average American can take advantage of!
The Tony Robbins’s episode scared me off. I only made it about thirty minutes in. I didn’t realize how angry TR is. And I mean maybe it is passion, but he had such an abrasive way of talking that it was just too much for me. I imagine, though, I’d feel similarly as I did when I listened to the episode on ice baths. Pass. 😉
$5000 in disposable. I would do more massage & acupuncture for pain management and travel a ton more. If I set my mind to it and never ate at home, I think I could probably achieve it. But I like when I’m staying at my girlfriend’s and she makes us a delicious breakfast a helluva lot more than the $15 brunch around the corner. I guess maybe I’d need to force myself to get a tailored suit and dress every month.
Actually, I would get a dog, and never worry about being able to cover her needs.
Yes, yes, yes. I love the dog idea. If I had $5,000 in disposable income each month, we’d be pretty close to FI (our budget is $6000 a month after taxes). So it would be really hard to spend it. I’ve always said the only way I could justify getting a dog would be if I could work at home. This sounds like the ticket 😉 Thanks for the fun chance to dream a bit!