Redefining Success: Why Your Disposable Income Matters More Than UK’s GDP
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
⸻Charles Dickens
Last week, the UK government announced that the British electorate will soon vote on which political party they wish to lead the country into the future.
From now until voting day, I suspect we will hear MPs on all sides discussing “Britain’s economic record”. Many will likely highlight the 0.6% growth of the last quarter.
This growth is significant because it marks the end of the shortest and shallowest recession in modern history, a period of just two quarters last year.
The growth they talk of is a measure of GDP (Gross Domestic Product). But what exactly is GDP?
It’s been a long time since I studied Economics (on a campus now made up of expensive, and probably unsellable, flats) yet I still recall the concept well.
GDP is the total measure of how much, in terms of products and services, a country is producing. People are units of profit-generating activity, while children and the elderly are seen as overheads, supported by the working population.
A rising GDP, if distributed equally, signifies an improving standard of living and rising tax receipts, which can fund a range of vital public services.
But I’ve often wondered, is GDP actually a good measure of how well we are doing? Not according to Charles Dickens in 1849. For him, it doesn’t matter how much you produce or how high your income is; what matters is what is left in the end.
It’s my view that we should focus not on GDP but on disposable income as our measure of growth.
After meeting basic needs such as food, heat and shelter, what we are left with is our disposable income. And a rising level of disposable income is what we need to thrive.
So, how can we utilise this disposable income to build a future that ensures independence and dignity?
Two important factors need to be considered: full ownership of a home without debt and sufficient savings to support retirement.
As we age, according to economists, our economic worth declines. We become slower, find it harder to learn new skills, and our ability and motivation to keep grinding away, decade after decade dwindles.
Yet, to be happy and content, we still need disposable income.
So, how do we create disposable income when our earning capacity has declined? We dramatically reduce our costs by paying off our mortgage. With no mortgage and even a modest pension, we often have enough to enjoy the fruits of our labour.
Instead of focusing on GDP, perhaps the government should encourage and measure whether the average person can cover their bills, pay down their mortgage, and save enough for retirement.
At Barnaby Cecil, we work on these three foundations: expenses, mortgage and retirement. Once these key elements have been addressed, we can add additional objectives, such as supporting children with the cost of higher education or a home deposit.
Clients will recognise these “nudge objectives”, where, once their own needs have been addressed, we begin to explore what else matters to them.
A phrase clients will also recognise is, “you must fit your own oxygen mask before helping others”. This is the very essence of what we are trying to achieve with our WealthMap planning.
After essential expenditures, home, retirement and family, what’s left is true disposal income, which, in my opinion, is where one element of happiness is found. Not all happiness, of course, and certainly not all misery.
Knowing and measuring true disposable income provides confidence, stability and independence and ensures that your efforts today help to secure a future of balance of contentment.
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