March 15th, 2021

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"Disposable income"?

A mortgage adviser wanted to know our disposable income. We weren't sure how to answer, and the more we tried to drill down into what he meant by it, the more confusing it got. The concept seems to rely on two assumptions, both of which I disagree with: 1) that there's a clear binary division between needs and wants, and 2) that this corresponds to the distinction between regular recurring payments and ad-hoc spending (apart from food).

Lots of spending is irregular but necessary (e.g. car breakdown, essential appliance breakdown, dentist bills, vet bills). And lots of spending is regular but non-essential and could be cut back if we were struggling (e.g. charity giving, kids' extracurricular activities, subscriptions to video streaming services/magazines/websites).

He talked in terms of "money left in your account", but that's also a concept I found confusing: all money is either spent, given away, or saved/invested, so all of these involve it leaving your account (unless you "save" it by just leaving it sitting there, but that's not different in any mortgage-relevant way from moving it to a savings account). Whether you save money using a regular standing order to a savings account/investment vehicle, or by manually transferring some ad-hoc whenever you have a bit spare, or by just leaving it in your current account, is not a function of how wealthy or financially stable you are, it's a function of temperament (and, if there's any correlation between that temperament and mortgage suitability, it would probably go the other way: people organised enough to bother setting up a regular transfer to savings/investments are probably a better mortgage risk, even if they thereby have "less disposable income").

I'm aware we're quite privileged in that we have enough money for all our needs and most of our wants. If we were quite a bit poorer, then we would pay all the essential fixed bills (mortgage/rent, utilities, council tax, etc) and then be like "this is how much we have left for food and any other costs this month," so then we might have a better-defined idea what our "disposable income" was (even though it would be very low in that situation). But presumably most people in a position to be speaking to a mortgage adviser aren't in that situation. For us it's more like a complex system with feedback loops: we spend on non-essential stuff to the extent that we have spare money, and spend less when money is tighter, but it's kind of organic and averaged out over longish time periods, not like "we have X pounds and Y pence left at the end of this month." Big discretionary purchases like furniture/appliances and (in non-pandemic times) holidays dwarf the small everyday discretionary spending on things like games or takeaways, so I have no idea what our "regular" spending on that kind of thing is without doing a big calculation with rolling averages, and even then it would depend massively on what arbitrary time period you pick.

Would you be able to answer the question "how much is your disposable income?" I'm not asking for a number, just asking if you think it's a meaningful question.