Your daily disposable income (or DDI) is, quite simply, the total amount of money available to you to spend according to your whims each day once all your financial commitments have been taken into account. Calculating your DDI is a simple enough procedure, but needs to be done correctly if you are making a serious budget for your discretionary purchases.
Several years of recession, static wage growth, high inflation, pension deficits and job market volatility in the aftermath of the credit crunch have meant that many people all over the world are a lot more concerned about managing their income and living within their means than they were during the good times. How long this thrifty attitude will last once the global economy recovers is anyone’s guess, but for the moment people are counting the pennies.
But while it’s good to stretch your money as far as it will go, while saving for a rainy day and putting something aside for retirement, the truth is that you do need to enjoy life a bit and splash out occasionally, so follow these steps to work out your level of daily disposable income. Be warned, however, that if your income is so stretched that you really need to budget your daily ‘fun fund’ so precisely, that it’s likely to be a gloomily small amount.
First, work out your monthly income. This could be a standard salary payment, or if you are paid hourly or do shift work, you may need to add up your income from the last three months and then divide by three to reach a broad average. The more precise you can be with these figures the better, however, as you will have more confidence in the final result. Add up all your salary payments, interest accrued from savings, bits of freelance work, everything.
Once you have an income total, subtract all your regular monthly outgoings. Start with rent or mortgage payments, as they are likely to be fixed costs and among the largest monthly expenses. Then look at any recurring payments for finance purchases (cars, etc) as well as regular utility bills. Subscription fees to professional associations, season tickets for transport, every single direct debit or standing order on your bank account.
All of the above should use precise figures wherever possible, but then you need to get a bit vaguer, unfortunately. Budget how much money you spend on essentials such as food and clothing in a month (this will always fluctuate but try and work from actual receipts to get a more accurate picture rather than estimating wildly). Decide how much you want to put into savings, investments and pension funds each month and subtract that too.
The final figure, once you’ve subtracted all those outgoings, is your monthly disposable income. Then divide that figure by 31 to reach your daily disposable income figure. You could divide by the number of days in any specific month, but it’s best to work from the lowest possible figure, as we’re all human and you will overspend sometimes.
Once you’ve calculated your daily disposable income, you can then proceed to go and spend it on whatever you like, DVDs, video games, holidays, restaurants, anything. If it’s a very low figure, well, you have to save for a few days before making an extravagant purchase. If it’s a large figure, well, always remember that no one is forcing you to spend it.
The key to determining your DDI is to use precise figures, over-estimate your outgoings if possible and to keep careful track of your income and outgoings to make sure your DDI level is accurate. Many people can become extremely disappointed when they work out that they only have a few dollars a day in completely discretionary income, but this can be an excellent incentive to investigate economising measures in all aspects of your life.