Before you get hung up on your salary and the possibility of making more, consider your disposable income.
It's always amazed me that people can get so hung up on salary. Yes, your salary is important. You need a decent salary if you expect to provide yourself with the necessities of life and with some of your wants. However, a higher salary isn't going to cut it for you in every case.
There are times when it's more important to pay attention to your disposable income.
How Do I Define Disposable Income?
Investopedia defines “disposable income” as “The amount of money that households have available for spending and saving after income taxes have been accounted for.”
Basically, your disposable income, by this definition, is your take-home pay. If you make $4,500 a month, but all of your tax withholdings amount to $650, your disposable income is $3,850 each month. Personally, I like to take the definition a bit further. I like to say that your disposable income is what's left after you consider taxes and take into account the cost of housing, groceries, and utilities.
You can figure out your own version of disposable income, but I like mine because it allows you to figure out your cost of living into the equation and determine whether or not you really are better off if you move somewhere new.
Cost of Living and Your Disposable Income
CNN Money has a handy cost-of-living calculator that can help you figure out where you would stand if you moved to another city.
Right now, I live in Idaho Falls, ID. I sometimes miss living in Philadelphia (the place I lived just prior to my divorce). But I still really enjoy living here. I grew up here, and my parents and sister live here. There's a great community of people committed to doing good.
Moving back to Philly would be a whole thing.
The cost of living calculator provides you with an estimate of the salary you would need to maintain a similar lifestyle if you changed situations. Here's what would happen if I moved from Idaho Falls (sort of) to Philly:
We would have to make more than $20,000 more per year in order to make the move worth it. Granted, this estimate is actually for Twin Falls (c'mon CNN, get it together and add Idaho Falls).
I wouldn't have to commute; I work from home so my job isn't location-dependent.
Why I Like Where I AM: Disposable Income = Preferred Lifestyle
A lot of people have asked why I continue to live in Idaho Falls. I love the community here and the life I've built. Plus, I can live on less here. I'm not under a lot of stress to make a lot of money.
My monthly needs can be met with a spending plan that includes:
- $2,000 housing costs (less than 20% of my monthly income)
- $100 utilities
- $170 phone costs (unlimited plan with international and hot spot for my son and me)
- $900 car costs (insurance for my son and me, my car payment, maintenance and repairs)
- $400 groceries
- $375 health insurance
- $500 other insurance and miscellaneous needs
That's less than $5,000 for my needs. And I usually make twice that each month, leaving room for me to save for retirement, invest for various goals, enjoy my life, and give to charity.
My lifestyle preferences
I love living in Idaho for several reasons:
- I spend a lot of time in the outdoors. Camping, hiking, road tripping, hot springs, snowshoeing, and other activities that I can do easily within a few hours of my home.
- Small town experience of building community downtown.
- Many of my services, like hair, nails, lashes, and more, are less expensive, so it's easier to maintain my routine.
- Time with family is important, and my son still lives here, so I spend time with him and with my parents.
- Travel is a value of mine. My low cost of living here means I can afford more travel. Driving to Salt Lake allows me to access low-cost flights if needed.
- Community involvement with non-profit boards and politics allows me to feel like I can make a difference.
All of this comes with a very low price tag. I live my preferred lifestyle and do pretty much what I want while saving for retirement, building an emergency fund, and taking care of other priorities.
I'd either end up having to modify our lifestyle to bring it in line with the new cost of living and lower disposable income.
What's your situation? Do you consider your disposable income? What would make it worth it for you to move to a new place?
Interesting post. I’ve always paid less attention to my salary and focused more on disposable income which was a true reflection of my finances. I’ve always tried to save a significant proportion of my disposable and this has helped me get ahead in life. Great post, thanks for sharing
Yeah, I think focusing on directing your finances according to your priorities and values, and looking more at what you have left over is way more important than a salary. The intention involved can make a big difference.
Thank you for posting this! So many people haven’t ever thought about this idea at all. My spouse and I would like to move to a major city, and one of the things that we talk about the most is how much more we would spend while living in one. Our food costs are high right now due to being rural, but the myriad of additional places to spend money, plus massively increased housing costs would more than offset any savings in that category.
You really would have to weigh lifestyle with cost, and with what you truly want for yourselves. It’s a tough thing to do, and it’s sometimes hard to find that balance.
Most people make decisions based on the headlines, bigger salary, but skip the details like higher cost of living. If only every decision were as well thought out as yours there would be a lot more people doing well.
I agree. Too often we’re dazzled by the headline, but neglect to read the whole story.
Disposable Income holds a true importance in everyone’s life, where it shouldn’t be wasted to live a extravagant life, rather to save a better portion for upcoming future where every needs can be met with ease.