Disposable income also called personal disposable income (PDI), as the name suggests, is the part of the income you have at your disposal after paying taxes. In other words, this income is the post-tax amount that you are left with for spending and saving.

While most people feel that disposable income can be used only to pay off for the necessary expenses along with some discretionary ones, in reality there are several things which you can do with it. Read on to know more:

  1. Make an investment
  2. You can use a part of disposable income to make small investments in various financial instruments to compound your wealth in the long run. And to be able to do so, you do not require a large sum of money. For instance, you can use a small amount every month into mutual funds through systematic investment planning (SIP).

    You can give standing instructions according to which a certain amount is invested every month in your chosen fund. You can invest as little as Rs. 500 per month.

  3. Pay off that debt
  4. After taking care of the monthly expenses, the next immediate financial strategy should be to pay off debts. For instance, credit card bills or a loan EMI must be paid, failing which can dent your credit score. You can automate payments to ensure that you don’t miss these payments, which can bring down your credit score. Also, a default brings down your creditworthiness.

  5. Buy an insurance
  6. Before you start spending the remaining part of your disposable income in non-essentials, it’s a better idea to utilize the money in securing your life and that of your near and dear ones.

    You can use the money to buy a life insurance plan along with medical insurance. You can avail a term plan which offers a large cover at an affordable premium along with a family floater plan that covers all the members of your family.

  7. Set up an emergency corpus
  8. Emergencies often announced and hence, it’s important to be prepared for the same. A part of the disposable income should be used to set up an emergency corpus which can be accessed easily, when required.

Liquid funds are your best bet while building an emergency corpus as they offer higher returns than a bank savings account and can be accessed easily.

By prudently using your disposable income, not only can you build wealth for various life goals but also be better prepared to handle any emergency.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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