Disposable Income

What is disposable income? It is the amount of money that households have available for spending, saving and investing after income taxes and mandatory payments (i.e. mortgage, food, transportation and health insurance) are accounted for.

A recent survey initiated by Money Magazine disclosed that the disposable income of American households is disbursed as follows:

Travel: 30%

Home and Beauty: 22%

Eating Out: 20%

Clothing: 17%

Recreation: 11%

Did you notice anything missing?  Yes, you got it!  Based on this survey most American households apparently aren't using any of their disposable income  to put towards savings or investments.  We can not expect our finances to grow if there is no system of saving and investing.  

This is  a huge problem that will result in Americans having to work far longer than their parents and grandparents had to.  Let's get in front of this and begin developing a plan to save and invest.

The Key to Investing

There are some things that professional investors know that many of us don’t because of their experience, education and instinct.  But there is something that places us all on the same playing field, and it’s not a huge secret – its cash.  The key to investing is having cash available.

Cash is the key because it gives us options.  Take a look at your portfolio and determine how much you have invested in the market.  Are you investing more than 75% of your disposable income?  If so, that might be a mistake. Maybe you should think about only investing 50% of your disposable income in the market. 

In 2010, keep cash on hand in order to take advantage of great investment opportunities as they present themselves.