Of Disposable Income And Debt Bondage

Since the 80s we have fewer and fewer dollars to spend or save

When I think of the word 'disposable', I think of throwing away something that is of no use. When it comes to finances, though, the meaning is different - disposable in this context means "freely available for use". Therefore, disposable income is money you have, after taxes, that is freely available to spend or save.

I think that the former definition is more accurate, though. Disposable income for most of us, means money that we can throw away on things we don't need. Any money freely available for use, is used.

But as can be seen on the graph above, disposable income has been steadily dropping since the 1980s. Most of us, outside the top earners who have actually enjoyed increased disposable income, are finding that we have less and less money to spend or save as we see fit.

In recent years compensating for diminishing disposable income has meant taking on more debt in order to maintain high-consumption lifestyles. Although the tide has begun to turn, and debt levels are slowly decreasing, debt is still dangerously high compared to historical levels.

Throwing away money on things we don't need has always been costly, but it is much more costly when it is done with borrowed money. Why? Because permanent debt bondage means the end of freedom. It restricts our choices and options, and reduces our independence.

John Perkins, in Confessions of an Economic Hit Man, writes that the the modern equivalent of enslavement is not by force, but by debt. It is a choice that many feel they have to make, and just about everyone I know has chosen to be enslaved by the banks in exchange for things they don't need.

RVs, McMansions, new vehicles, international vacations, and a wide variety of toys are keeping people in a revolving door of debt. As Ogden Nash wisely observed, "Some debts are fun when you are acquiring them, but none are fun when you set about retiring them."

Endless debt is the opposite of simple, sustainable living. It is the opposite of freedom and independence. The average debtor enjoys pleasant distractions as well as social strokes, but along with this comes stress, depression, dependence, and inequality. It is not easy struggling with persistent debt.

The following quote shows how debt bondage has been working out for the average worker as opposed to the average owner:

"In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers)." 

From: Wealth, Income, and Power

Debt has its place in modern society, but permanent debt does not.

The first step toward the freedom of a sustainable, simple life is getting the debt monkey off your back. If disposable income decreases we can choose to reduce our spending rather than maintain it through borrowing. A reduction in personal spending and adoption of a lower consumption lifestyle lead to a whole host of benefits.

We can choose to break free and regain our independence, and can start by adopting Rule #1: Spend less than you make. Only then will debt be demolished, and emancipation be possible.