7 Common Disposable Income Mistakes to Avoid in 2025
Having money left after taxes is a good thing, but spending it without a plan?
That’s where many people can go wrong.
Disposable income is not the same as discretionary income.
Disposable income is what you have left after paying taxes. For instance, if you earn $60,000 annually and pay 20% in taxes, your disposable income is $48,000.
Discretionary income is what remains after covering your essentials: Housing, food, transportation, insurance, and utilities.
That’s the amount you can actually spend freely.
One of the biggest financial mistakes people make? Spending their entire disposable income as if it’s all discretionary.
Here are 7 common disposable income mistakes to avoid this year.
#1 Not Having a Budget
Treating disposable income as if it’s all fun money may be a recipe for overspending.
Create a detailed budget that accounts for essentials, savings, and debt payments.
Then, whatever is left – your discretionary income – can go toward fun and lifestyle purchases.
Budget for the extras.
Plan your entertainment and shopping. Plan for vacations and holiday spending. Then stick to the limits you set.
#2 Overspending on “Needs”
Just because you qualify for a larger mortgage doesn’t mean you should buy the most expensive home you can afford.
Same goes for car loans and lifestyle expenses.
Live within your means.
Once your essentials, savings, and goals are covered, then look at upgrading your lifestyle – but not before.
#3 Putting Yourself Last
A lot of parents and grandparents fall into this trap – spending their extra money to support kids or grandkids financially.
According to a report by Savings.com, 50% of parents financially support adult children.¹
The study also found, “Parents now spend about $1,474 a month, on average, on their adult children – a three-year high.”²
While generous, this may hurt your own financial security.
If you don’t prioritize your own financial health and your own retirement savings, you could end up needing their support down the line.
Pay yourself first.
#4 Mismanaging Credit Cards
Credit cards aren’t inherently bad.
In fact, they can build credit and provide perks if used responsibly.
But many people misuse them by spending beyond their means.
If you don’t pay off your balance each month, interest may eat into your income fast. Also, don’t just settle for the first card that comes your way.
Compare rates, benefits, and rewards.
Pro tip: If you’ve got good credit, call your issuer and ask for a better interest rate.
#5 Spending Just Because You Can
It’s easy to justify buying luxury items or indulging in hobby spending when your income increases.
But having more money doesn’t mean you need to spend it.
Whether it’s a boat, timeshare, or nostalgic LEGO set, large or repeated small purchases add up.
Don’t confuse “I can afford it” with “I should buy it.”
#6 Skipping the Emergency Fund
A Bankrate study found more than 1 in 3 Americans needed to tap their emergency savings in the past year.³
“37% of U.S. adults needed to use their emergency savings at some point in the last 12 months. 80% of those people used the money for essentials, such as an unplanned emergency expense, monthly bills and/or day-to-day expenses.”⁴
That’s a problem.
Instead of spending all your extra income, use part of it to build a safety net.
You never know when you’ll face a layoff, medical emergency, or major expense.
Prioritize an emergency fund so a surprise doesn’t turn into a financial crisis.
#7 Ignoring Retirement Savings
If you’re not contributing to your 401(k), or if you’re skipping your employer’s match, you’re leaving money on the table.
We recommend you start now.
Let compound interest do its job.
For those over 50, take advantage of catch-up contribution limits. In 2025, the contribution limit is $23,500. For workers aged 50 and above, you can contribute an additional $7,500 ($31,000 total).
Use your disposable income not just to fund today’s wants, but to build tomorrow’s freedom.
Have questions about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.
Sources:
- https://www.cnbc.com/2025/03/25/half-of-parents-financially-support-adult-children-report-finds.html
- https://www.cnbc.com/2025/03/25/half-of-parents-financially-support-adult-children-report-finds.html
- https://www.bankrate.com/banking/savings/emergency-savings-report/
- https://www.bankrate.com/banking/savings/emergency-savings-report/
