Many companies within the financial sector look at a person’s Disposable Income, from Banks and Building Societies to Debt Management companies and Insolvency Practitioners, but has anyone actually explained what it is, what it’s used for and how does it affect you?

If you have stuggled to figure out where your money is going each month or you wondered what Disposable Income is and how to calculate it, this article will help you.

Your disposable income is vitally important and governs most general spending from paying an amount off your credit card to paying/saving for a holiday and even for planning a night out. Disposable income is “spare money” available after all essential household bills have been paid.

When applying for a loan, your lender would perform a credit search against you to first determine if you are likely to repay the money back without missing payments. Once they are happy, they will usually look at your income and expenditure to see if the payments will be manageable.

If a loan payments was £100 per month and you had a £500 disposable income, the chances are you may be accepted to take out the loan. However, if the payments were £200 and your disposable income was only £150 they would see this as high risk and decline the loan at that time, through fear of overstretching your finances.

How do I calculate my Disposable Income?

The easiest way to calculate your disposable income would be to first make sure all household income and expenditure is calculated on a monthly basis.


Income is any money that comes into the household on a regular basis. All forms income should be net (after all tax, national insurance and other deductions are taken out) and can also incude such as-

  • Child Benefit
  • Working Tax Credits
  • Pensions

Once calculated this will be your total household income (e.g. £1,000)

Expenditure (essential bills and payments)

Essential Expenditure is any payment relating to your day to day living which is needed for basic domestic living and for which there are consequences if you are not able to afford them. Generally there will be items such, but not limited to-

  • mortgage/rent
  • council tax
  • utilities
  • mobile phones
  • hire purchase agreements (loans secured against a vehicle)
  • vehicle expenses ( tax, MOT, fuel and servicing costs)
  • household food
  • child minding

If you have any debt (credit cards, store cards, unsecured loans, payday loans etc) leave these out of your essential bills, as we will look at your debt level below.

Once calculated this will be your total household expenditure (e.g. £750).

Non-essential bills and payments

This will be items which are not essential to your day to day living but are none the less still important to look at.

This can be anything from an annual membership to the local golf club to gym membership’s, magazine subscriptions, satellite television and more. Although these are important to you, if times do get hard, you can look at stopping or reducing the cost one or more items classed above until your financial situation improves.

It is also good to class all unsecured debt in this category. Write down who you owe money too and how much is left together with the monthly payments.

Once calculated this will be your non-essential bills and payments.

Calculating your Disposable Income and what does it mean?

Once you have all the figures above any you are happy with them use the following calculation steps below to workout your total household disposable income.

    total household income (e.g.  £1,000)
total household essential  expenditure (e.g. £750)
= total household disposable income
(e.g. £250)

How can I tell if I am financially overstretched and what can I do?

In our example, we have a disposable income (“D.I.”) figure of £250, which is used to pay the non-essential bills and payments and is also used to pay for holidays, Christmas and birthdays.

A good example if you are financially overstretched is take your total household disposable income and subtract your non-essential bills and payments.

Positive figure
(E.g. £250 D.I. – £100 non-essential bills and payments = £150)

In our example, this person can quite comfortably afford to maintain that current lifestyle and has a little bit left over each month to either save for a holiday or to keep for a rainy day (boiler repairs etc.).

Large negative figure
(E.g. £250 D.I. – £450 non-essential bills and payments = –£200)

In our example, this person is living beyond their means and should seriously consider cutting back on all non-essential bills and payments. Unless a significant saving can be made by changing where this person shops or if any savings can be made on their utilities, we would suggest that this person contacts Harrington Brooks to try and help with a solution to their financial struggle.

If you feel like it’s a struggle each month to pay credit cards, store card, loans and overdraft charges, there are a number of solutions available. Don’t panic but more importantly don’t ignore it, help is always available regardless of your situation.