Disposable income (or in many cases, the lack of it) has become a hot topic as inflation has soared across the UK, with households – particularly in the lower end of the income spectrum – seeing their income squeezed. Indeed, according to the ONS, median household disposable income was £32,300 in 2022, down 0.6% on 2021, yet for the poorest fifth of households it has decreased 3.8% to £14,500. The richest saw their income increase by 1.6% to £66,000.
So we get it. Not everyone has disposable income to “play” with. But if you’re in the fortunate position of still having some disposable income, you may be wondering how you can make the most of it if it has stagnated a little owing to the economic climate.
Savvy spending is arguably even more important for freelancers whose overall income can sometimes be less predictable.
So, what do you do to spend savvy with whatever disposable income you do have? Let’s take a look.
Pay off debts – Priority One
If you are in debt, paying off credit cards, personal loans and other forms of high-interest credit is an absolute must before you use your disposable income on other forms of spending.
Using resources like the popular Reddit community /UKPersonalFinance’s flowchart of spending and investing, you can prioritise which debts to service first. Just make sure to leave yourself some money left over for ‘fun’ spending to keep your spirits up!
But by paying off expensive and high interest debts first, you will ultimately save yourself money in the future. So this is a good place to start.
Save
Saving is an important thing to do at every stage of life whether you’re freelance or not.
You can put money away in easy-access savings account if you may need to withdraw quickly. Or you can opt for fixed-rate bonds which often offer a slightly greater interest rate in exchange for not being able to access your funds for a set period of time.
Generally, it’s a good idea to save an emergency fund that will provide you with a buffer in times of money stress, like if you’re made redundant, lose a client or if your boiler breaks. Typically, three to six months’ of average earnings is a strong amount to have available to you.
If you’re working in a freelance career where revenues and income changes a lot, this becomes even more important.
Indulge yourself
Rewarding yourself after a long month can be an excellent way to keep yourself motivated and feel a sense of achievement.
While it’s important we manage our money properly, pay off debts, and get our finances fixed for the future, live is about living, so don’t stow away all your money – spend some of it on things you love.
Working hard all month warrants a treat And one of the best ways to stave off burnout can be to indulge yourself to a little time away, a day out or just buying yourself something you love.
Make it grow
So, you’ve done the hard stuff, saved up an emergency fund and paid off your debts. To make your money go further, it can be a good idea to invest. Putting your money in less risky stocks and shares ISA accounts, or if you don’t mind risk, into individual company stocks, can be one effective way of growing your money. Just bear in mind you could lose funds as much as gain them and you should always seek out the advice of professionals before investing.
Enjoy your income
Ultimately any disposable income you have should be about repaying debts, saving up and potentially using it to invest. But don’t forget to reward yourself with your hard earned money too.
