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Mobility Basics - Understanding spendables

Following on from our look at the home-based salary approach and the Cost of Living Adjustment, we delve deeper into the concept of spendable income – the portion of salary to which the cost of living index is typically applied.

What is included in the spendable income?


According to ECA’s Expatriate Salary Management Survey, 55% of companies that reference spendable income use the total spendable portion of salary, which includes all expenditure except housing costs and savings. The total spendable can be further broken down into index spendable and other spendable. Index spendable (used by 31% of companies) covers day-to-day expenditure such as food and household essentials that are covered by ECA’s Cost of Living basket. Other spendable covers less regular expenses such as furniture; luxury purchases such as jewellery or holidays; and items that are often compensated for separately in the salary package such as education and health insurance. A small subset of companies (14%) choose to use an adjusted index spendable that incorporates expenditure on specific groups within other spendable such as utilities or public transport.

An alternative method used by some companies is to apply indices to a flat percentage of net salary - most commonly 60% - irrespective of the assignee’s personal circumstances. This generic approach is certainly much simpler to implement but can be much more difficult to defend. 

Components of salary

Total spendable
Housing and savings
Index spendable
Other spendable
Food, including meals out
Alcohol and tobacco
Mortgage payments
Clothing and footwear
Property repairs and maintenance
Household products and services
Private health services
Private pension contributions
Medicines and medical products
Vehicle purchases
Life insurance
Toys and hobbies
Public transport
Sporting goods and services
Cultural services
Audio-visual goods
Vehicle running costs
Bank and legal fees
Personal care

How is spendable income derived?


Variations in spendable income

Differences in spendable income can be explained by a combination of three key factors: the household income, the household size and the nationality.


Household spending patterns can vary enormously between countries.

The cost of living in a country can influence how households allocate their income. High accommodation costs in Hong Kong for example explain why housing accounts for close to 30% of income for the average household, while the proportion allocated to items within other spendable is relatively low.

Institutional differences, such as the level of state funding for pensions and healthcare, can also impact spending behaviour, in particular it can affect a household’s propensity to save. A less generous state pension system, such as that seen in Japan, would encourage households to save more for retirement, while households that can better rely on the state, such as in Finland, save less.


Furthermore, these factors which contribute to variable spending patterns can evolve over time. A rise in inflation will likely necessitate an increase in spending and result in a drop in savings. Populations are aging across the globe, and continuing to impact average spending patterns, as will rapid urbanisation in countries such as China.

chart showing how the spendable components of a net salary differ by locationHousehold income


This is illustrated by the example below for a family of four in the USA. At a junior manager level, the index spendable accounts for 28% of net income, other spendable 29%, housing 23% and savings just 21%. Comparing this to senior executive level we see that household spending behaviour changes significantly. The index spendable share drops to 21%, other spendable and housing both fall but at a slower rate, to 25% and 19% respectively, and the rate of saving soars to 35%. 

chart showing how the spendable components of a net salary differ by seniorityHousehold size

The third key component which influences spendable income is the size of the household. As the family size expands, so do certain costs, which can diminish the ability to save. Though the impact of an increase in family size on spendable income does vary by country and income size, one common trend is that index spendable takes up a greater proportion of income for larger households. However, the impact to housing and other spendable is not as consistent.


chart showing how the spendable components of a net salary differ by family sizeHost spendable










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