Perhaps you recently received a pay raise or maybe your expenses unexpectedly decreased. Whatever the reason is now you have found yourself with a little bit of extra disposable income at the end of every month. As a responsible adult, you are the only question you have is how you can is this extra money intelligently every month? This is a great question and one that will help you to build the future that you deserve. Before we answer it through let’s first look at what disposable income is exactly anyways.
What Is Disposable Income?
Your disposable income has a technical definition. The definition of disposable income is all of the income left over after you have finished paying taxes. Sometimes this is referred to as your net pay as opposed to your gross pay. Disposable income is often confused with discretionary income. There is quite a big difference, however. Disposable income is everything left over after you have finished paying only your taxes while discretionary income is everything left over after you have finished paying your taxes and all other necessary expenses.
The Seven Best Ways You Can Put Your Disposable Income to Work
If you have recently gotten a pay raise or maybe change jobs to make a higher-paying career then it’s a good idea to figure out early on how you will use this extra disposable income. There are several options that can definitely pay off for you in the long run. Here are seven of the best ways that you can make use of your extra income.
Open a Certificate of Deposit Account
You can open a certificate of deposit account. These are traditionally referred to as CDs. These are similar to a regular savings account but there are a few limitations that prevent you from accessing the money so you do not waste it. They also have higher interest rates so they will be able to generate more income for you then if you simply put your cash in a regular savings account.
Treat Yourself to a Gift You Wanted for a Long Time
Surely there are several items you have been wanting to get but have not pulled the trigger yet. While there are probably better ways to spend your money it is important that you treat yourself occasionally so you do not get burnt out.
Pay off Your Debt
A refrain that has been growing more and more popular among economists in recent years is that one of the best-guaranteed investments is paying off your debt early. This is because you are avoiding all of the interest that you would have paid on the money if you pay off early. This is a guaranteed return because you would have been guaranteed to pay that interest if you have not paid off your debt sooner.
Choose a Company to Invest in
The stock market or corporate bonds represent another great area for opportunity. You should do plenty of research and select a company whose mission you believe in. Invest a little bit of your disposable income every paycheck and watch as your portfolio grows.
Invest in Your Home
Here is a great option that allows you to enhance your own life while also taking advantage of the extra income. Your home is probably the only asset you own that appreciates in value over time. Upgrades to your house will only increase its value. Even if it does not recoup the entire cost of the upgrade it will recoup a good portion of it. So you will be able to make your house more enjoyable to live in while also increasing its value. It is hard to get much better than that.
Upgrade Your Car Insurance
You can also get a new car insurance quote from several providers to compare options. Chances are you can either save yourself some money and keep the same coverage or you can upgrade your coverage since you can now afford higher premiums.
Put It Away for Retirement
Saving for your retirement is another great option. You may not get to use this money anytime soon but the power of compound interest guarantees that it will pay off in the long run. The earlier that you start saving for your retirement the sooner that you will retire and more comfortable that retirement will be.
Parting Remarks on How You Can Use Your Disposable Income
Really the only unintelligent way that you can use your disposable income is if you do not plan on how you are going to spend it at all. Whether you choose an investment from the list above or something else entirely as long as you are trying to make the money work for you it should work out.