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What is disposable income?

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What is disposable income

Disposable income is the money that is left with you, at your disposal, after paying off all taxes, including federal, state and local. This is the money available for you to spend and save[i]. It is also referred to as disposable personal income (DPI). This is an important parameter, which is used as one of the indicators to evaluate the economy of the country[ii].

The Calculation

If you want to know how to calculate your Disposable personal income, then it is very simple. Consider all the income you earn from all sources (salary, commission, incentives, interest).  Let this be A. Next consider all the taxes you pay, including income tax, state taxes, local taxes, and deductions for Medicare and any other social security measure. Let this be B.

Disposable income = A – B.

Why is it important?

Disposable income is important[iii]because it is the money that people have to spend or to save. Therefore, this is an important parameter used to judge the state of the economy. There are other parameters like discretionary income, marginal propensity to consume, and marginal propensity to save. To calculate all these parameters, disposable income is the basic data needed. This explains its importance.  It also helps to determine demand, because the availability of disposable income means that people would spend money to save products.

In the United States, disposable income in October 2017 was $14513.3 billion. As of October 2018, it was $15650.96 billion[iv].

Disposable vs. Discretionary

In some places, you may see the terms disposable income and discretionary income used interchangeably. But this is not correct, both are different terms. Disposable income is income left over after deducting taxes. Discretionary income is the income left over after all expenses and savings. This is the amount left for spending on non-essential purchases, after spending on all essential items and saving for the future. It is the money spent on eating out, entertainment, a vacation, etc.

Budgeting

You would ideally need to budget every year to make an estimate on how much disposable income you would have. Firstly list out all the sources of income you expect for the year, including salary, bonus, incentive, earnings from rent, business income, and any other income. Then based on the present tax rate, deduct taxes from the income. Make sure you include all taxes, even payouts for Medicare and any other social security schemes. The amount you end up after deducting taxes from your income is the disposable income for the year. You can then plan your expenses for the years and savings, based on disposable income.

Increasing your disposable income

Once you make a budget, you may realize that the income you have is not sufficient to meet your savings needs. You then need to work towards increasing your disposable income levels. There are various ways you can do this. You need to work to get a salary hike or get a new job that offers a higher pay. The second option is to take up a part-time job after office hour or even start a business which you could manage online or in your post-work hours. You can also look at earning from your investments. This would help you to increase your disposable income.

The income left after deducting all taxes is disposable income. While it is one of the parameters to judge the national economy, it is also critical for you as an individual to run your home.

[i]https://www.patriotsoftware.com/accounting/training/blog/what-is-disposable-personal-income/

[ii]https://www.investopedia.com/terms/d/disposableincome.asp

[iii]https://www.thebalance.com/what-is-disposable-income-4156858

[iv] https://tradingeconomics.com/united-states/disposable-personal-income

Finance

2020: the year mortgages went digital

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2020: the year mortgages went digital 1

By Francesca Carlesi, co-founder and CEO, Molo – Feb, 2021

It’s safe to say that the past year has changed everything. With restrictions in place that limited almost every aspect of our lives, from work to socialising, it’s no surprise that some industries were decimated and others were left severely shaken. The mortgage sector was no exception, as it also underwent a vast transformation which may have changed the course of mortgages forever.

The industry saw a paradigm shift, which was driven by consumers being forced online. This was the case for everything from mortgage applications to online house viewings and property valuations. As expected, this resulted in an increased demand for digital mortgage solutions with more flexibility.

While the industry was already slowly shifting, the pandemic has accelerated this and now the traditional process of getting a mortgage is increasingly coming under threat. We’ve seen a number of somewhat surprising trends over the last year that support this argument and suggest that consumers are embracing the change. For example, compared to March last year, we’ve seen the number of people aged over 45 applying for a mortgage loan increase by 70%. This indicates that consumers who may have previously resisted applying for a digital mortgage saw no alternative option in lockdown.

It seems that this paid off, as our data suggests that overall consumers were more satisfied with the simpler and quicker process.

A shift in behaviour

It’s clear that the pandemic did nothing to discourage those seeking a mortgage from doing so and the industry continued to grow. For example, in October last year, the UK mortgage industry saw a 13-year high, where over 97,500 loans were approved – the highest figure since September 2007, the month at the start of the financial crisis. But what led to this and why?

In a post-pandemic world of financial uncertainty and instability, the idea of purchasing property is now being perceived by many as a safer bet than investing in the stock market or other investment options.

As a result, buy-to-let properties are becoming an increasingly appealing option and Google has now coined it as ‘breaking out’. Not only did Google trends observe a 5000% increase in the search term ‘how to get a buy-to-let mortgage’ last year, but at Molo, our own data also supported this and found a significant rise in the number of first-time buyers who were mortgage hunting.

Despite being introduced twenty years prior to buy-to-let mortgages, let-to-buy mortgages also saw huge growth in 2020. The pandemic has led to increased numbers of remote workers and commuting has become a thing of the past. UK cities are seeing somewhat of a mass exodus as the priorities of city dwellers are changing and many are going in search of more space. Let-to-buy mortgages offer the flexibility to facilitate this. Investing in this kind of mortgage means that families, for example, can afford to rent out their property in the city and move to locations that are more rural.

We’ve also seen the industry pivot slightly in terms of regional demands. While there is continued demand from London and the South East, for example, we’ve also seen growth in areas such as the North West and we predict this won’t slow any time soon. One of the cities with especially high demand was Blackpool, where growth in demand was twice the national average.

Future gazing: 2021 and beyond

We’re expecting that the changes seen across the industry over the past will stick. After all, if even the sceptical customers were happy with the ease and simplicity of the online mortgage application and approval process, why on earth would they go back?

It’s important that we learn from these observations and use them to draw insight into the future of the mortgage sector. For instance, while Coronavirus has certainly caused disruption for lenders and consumers alike, it’s also highlighted the need for a more advanced, digital offering. It’s shown that digital mortgages really have become the best option for customers. The pandemic has been a test run for businesses and has proved that, even after restrictions are lifted, there is no good reason for mortgage providers to return to the traditional but slower business-as-usual.

At least in the property world, 2020 could well be remembered as the year that mortgages went digital. While it’s true that the pandemic was the catalyst for this shift, it’s now gone beyond the virus. The changes we’ve seen over the past year are likely to shape the mortgage industry for years to come.

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EU finance chief says UK’s Northern Ireland move a breach of trust

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EU finance chief says UK's Northern Ireland move a breach of trust 2

DUBLIN (Reuters) – The European Union’s finance chief said Britain’s decision to make unilateral changes to Northern Irish Brexit arrangements raised questions over whether it can be trusted in future trade negotiations with any partner.

“It does open a question mark about global Britain, if this is how global Britain will negotiate with other partners. Our experience has been not an easy one to put it mildly,” Mairead McGuinness, who is negotiating post-Brexit financial services terms with Britain, told Irish broadcaster RTE on Thursday.

“We have to be very clear that when something happens that is not appropriate and indeed in our view breaches both trust and an international agreement, then we have to call it out. It wasn’t a good day yesterday but this morning we have to work for practical solutions, with the UK, not separately.”

(Reporting by Padraic Halpin; editing by John Stonestreet)

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The Benefits of Starting A US Non-Profit: The Latest Tax Regulations

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The Benefits of Starting A US Non-Profit: The Latest Tax Regulations 3

Starting a nonprofit organisation can be a very effective way of significantly improving your society’s welfare, and truly assisting those in need. Ultimately, however, understanding all the prerequisite steps mandated to start a nonprofit– as well as the legal obligations and privileges that can be associated with such a process, is crucial before fully committing to and moving forward with your business plan.

Growing a prolific, successful, and impactful non-profit can be a very tedious process and can commonly involve years of consistent effort, diligence, and determination. Consequently, this article will take a deep dive into the relative statutory and federal legislation and critically analyse the plethora of economic, monetary, and social benefits that starting a nonprofit can bring in for you.

Non-profit Organisations: A Quick Overview

Regardless of whether your goal is to address a particular societal issue, form a trade organisation or perhaps create a social club, if you are looking for the opportunity to earn a profit on top of accomplishing your stipulated goals, forming and operating a nonprofit organisation may be the way to go.

Contrary to most social clubs- which are formed to solely provide benefits for their specific members, nonprofits are generally created to provide benefits to the general public. These can include corporations created for educational, scientific and charitable purposes and- as we will further analyse below, are commonly exempt from paying corporate income taxation in accordance with Section 501(c)(3) of the Internal Revenue Code.

The Financial and Structural Benefits of Starting a Non-profit

As briefly touched on above, forming a nonprofit organisation can provide a plethora of benefits for you, these include:

  1. Tax Exemptions- companies that are categorized as ‘public charities’ in accordance with section 501(c) of the Internal Revenue Code are generally exempt from paying corporate income tax on a state and on a federal level. Additionally, after a company has obtained their aforementioned ‘tax exempt’ legal status, a person’s or company’s monetary donations to them is tax-deductible.
  2. Grant Opportunities- There’s a prolific amount of both public and private bodies that unilaterally limit their charitable donations and grants to public charities only. This is because nonprofits can- and commonly do, offer tax deductions to such individuals or corporate entities on an exclusive basis.
  3. Unique Corporate Structure- A nonprofit organisation operates as its own unique legal entity- completely separate from its owners and founders, and consequently is in a position to place its own interests and corporate ethos above the interests of the persons that may be associated with it.
  4. Limited Liability & Perpetual Existence- On top of having a statutory right to exist in perpetuity, nonprofits also have limited liability under the law. Therefore, any damages that may arise from potential legal disputes are limited to the real assets of the actual nonprofit, and not the assets of its founders and/or owners (subject to specific legal exemptions).

Final Overview: The Potential Disadvantages of Forming a Nonprofit

Despite all the advantages laid out above, it should be duly noted that there are a couple of potential disadvantages to forming a nonprofit that you may want to consider before moving forward with your plan.

Firstly, the process of forming a nonprofit can take a significantly long period of time and this is commonly associated with a great deal of both effort and capital. Moreover, in order to apply for some of the benefits listed above- including federal tax exemption, a monetary fee is required and the process also often needs a present attorney or corporate accountant to serve as a corporate consultant.

Furthermore, there are a couple of practical disadvantages to starting a non-profit organisation. These include: a) excessive paperwork- as all nonprofits are legally required to keep detailed analytical records of their practices and submit them to their relevant state de[artment and to the IRS, and b) limited personal control over the organisation- this is particularly the case in states that require nonprofit organisations to have more than one director.

Finally, nonprofits are commonly subject to prolific levels of public scrutiny- especially in relation to their finances, which may act as a disincentive for some private individuals.

Overall, starting a nonprofit can bring in a plethora of economic, monetary, and social privileges for the individuals involved, and- although the process can come with a few potential inconveniences, they are arguably a small price to pay. Companies like TRUiC advise on the varying benefits of different states when it comes to US formations. It is worth conducting thorough research before making your next move.

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