While it's good to look for sources of extra income, especially passive income, counting interest and dividends as part of your disposable income might be a mistake. I choose to only consider my income from salary as 'disposable' and have a savings target based on that income. This is because the income flowing from investment properties, shares and savings accounts forms part of the overall ROI of such investments. If you base your financial plans on the likely (eg. historic) returns of the assets in your investment portfolio, bear in mind that such figures generally assume all dividends or interest are reinvested. If you spend the some of the income being generated by your investment portfolio while it is still in the accumulation phase you will reduce the ROI of your portfolio. Even a small decrease in annual ROI will, over a long period of time, significantly decrease the final value of your portfolio.
Copyright Enough Wealth 2007