There are some problems with the division, and sure it could be possible that we could elect to have our basic expenses to be somewhere in the ballpark of 50% of our income, and once we figure out what our basic expenses, then the rest is discretionary income.
Portions of our discretionary income that we allocate towards debt servicing is not discretionary income, that is part of basic expenses.
With our discretionary income we can choose to invest (save), or consume. Each of us can figure out how much of our discretionary income we want to allocate to each of these.
Most people are not going to have 50% of their income as discretionary income, so 50% is pretty high. many will fit somewhere in the ballpark of 10% and 30%.
You are actually right and I agree with these points. Firstly, the 50%, 30% and 20% division may not work for some people due to high expenses demand and or the level of income that comes in. We know that expenses varies alot. Mr A might be spending a whole of 70% of his income on expenses while Mr B might just be needing 45, 50% or there about to clear up weekly of monthly basis needs, and offcours we know that this has a whole lot to do with how far you were able to clear or provide for previously and also the level of income that comes in weekly or monthly. However, everything boils down to your level of income. A high level of income earner can work with that division formula, not even always because at times expenses can increase as I explained earlier, while on the other hand, a low income earner will find the 50% discretionary worrisome and may not work with it comfortably.
So what really matters is getting to actually know what your expenses might be, or surely will be before the right discretionary can be discovered and allotted. And secondly, in picking out our discretionary, we shouldn't be too desperate or greedy in a bid to increase our accumulation speed over night by allocating big percentage to the discretionary income which in turns increases your accumulation without properly settling your basic needs and much needed expenses, because if this is done in any was, would hunt you within the week or month of such rash decision.
So I think individually, investors should check their possible income, determine there sure expenses and from it do there division to suit all sides and ensure peaceful living and accumulating simultaneously. It very clear that the formula that works for Mr A may not work for me
A person's discretionary income is calculated based on his expenses. For example, if a person's expenses are much higher than his income, then he will never be able to earn discretionary income. It is very important for a person to have proper financial management. If a person keeps 50% of his income as discretionary income, then it will never be a right decision. He has to calculate his discretionary income based on his expenses. If a person spends 70% of his basic income and if he keeps 50% of his income as discretionary income, then how will he meet the 20% of his expenses.
The amount of money left after the amount of expenses of a person is discretionary income. There are many people whose expenses are very low, their discretionary income is very high, while there are many people whose expenses are very high, their discretionary income is very low. It is very important for a person to reduce his excess expenses. For example, eating out at restaurants, etc. There are many types of excess expenses that need to be reduced.