Disposable Income Paradox


If I had to define Disposable Income, I would simply say it is the income earned that I can spend.

To the economist, it is more detailed and defined as income available for spending and saving after necessary deductions have been made.

Here is where the paradox kicks in, SAVINGS and SPENDING.

At this point I am trying to reconcile the principles of wealth, stories of smart investors, discussions with financial gurus and I begin to realize that something does not add up.

I immediately question what the economists had on their minds by putting two extreme ends of the spectrum of finances in one concept – savings and spending. Then the following thoughts pop up:

How am I supposed to save consumable money, my money for spending?

Can the bulk of the money I receive be placed in one account and I decide to keep some specifically for saving and the other for consumption?


In order to get my way round this, I realized that we have two choices: you can save your current income or consume (dispose) it.

Being familiar with the spending aspect, I decided to reverse the equation to see how this would help me because most of my funds get depleted and with no trace of actual value by the end of the month, and here is what I figured out.

Disposable income = Spending + Savings
50,000 = (30,000 + 20,000)
Saving = Disposable – Spending
20,000 = (50,000 – 30,000)

So I figured that, saving is disposable income that is not consumed and is not at your disposal. Thus, making me wondered why it was classified as disposable income, when it is capable of become a generator of income. Not long into my thoughts I realized the solution was in my decision (the choice). As interesting as it may be, this is not the issue of this topic but would get there someday in another article.

In my attempt to understand savings, it became clear that it is in fact an action word- a verb. It is not saving (the one time money drops into your account and you decide to keep some aside for a rainy day). It is saving with the letter‘s’ at the end, indicating a continuous and conscious action to make the transition for consumption to savings.

Now, understand that if the money is at your reach, it is available for consumption and can be easily disposed.

Here is how it works, assume I earn N50,000.00 a month. I open a savings account with a sensible interest rate and decide not to have any ATM card or withdrawal slips for withdrawal. That way, if I decide to actively save N20,000.00 a month. The money is hardly disposable income. As for the remaining N30,000.00, following the logic of the economist, it is highly likely to be disposed (no wonder my money disappeared without a trace).

Of course, I cannot tell you what you must do with your money but the idea is to take the first tiny step to create wealth by building blocks of assets.

In accounting terms, money in the bank is an asset. So yes, the savings account is an asset. Again, assets increase wealth, and the bank pays interest for the money you save (another characteristic of an asset).

The aim is to build up the savings account and create more assets along the way to help develop your financial position and make better financial choices.