In the blog post “Budgeting the Foundation of Wealth Building,” I discussed the various types of budgets that could be used to take control of your finances. But within all budgets, there are four overarching categories that have an impact on how much money you are able to save and pay down debt. The categories are housing costs, transportation costs, food costs and discretionary spending. Over the next few posts I will be dissecting each of these categories and discussing how to save money in each of them. But for this post I want to outline what percentage of your take home pay should be allotted to these categories. Listed below are my recommendations:
Housing Costs (30% -45% including the following)
- Rent/Mortgage Payment
- Maintenance and Repair
Transportation Costs (10%-15% including the following)
- Car Payments
- Maintenance and Repair
- Registration and Inspection
Food Costs (5%-15%)
Discretionary Spending (17%-37% including the following)
- Medical Health
- Life Insurance
- Disability Insurance
Savings and Debt Payment (10%-40%)
These numbers are just guidelines to be used as a spot check to see where your financial life stands. If you find that some of your numbers are out of line compared to what is shown above, that may not be a problem. (This is what makes personal finance so difficult. There is no one solution or system that fits every situation.) If your numbers are over in one category that means you will need to make adjustment in other areas to compensate. Even in the Broke Architect household, our allotment in these categories don’t fall within the limits outline above. Listed below are the percent Ms. Broke Architect and I live with.
Housing Cost – 53%
Transportation Cost – 3%
Food Cost – 10%
Discretionary Spending – 13%
Savings and Debt Payment – 21%
As you can see our house is not in alignment with my recommendations, but we are not overly concerned. We are contently working to improve our situation and over the last few years our numbers have really improved. At one point our housing cost was up to 59% of our take home pay and we were only allotting only 9% to saving and debt payment.
If you find yourself in an unhappy financial situation don’t every stop fighting for a better day. Use this post to get an understanding of your financial condition and let’s come up with a plan to move forward together.
Remember, no one will care about your money more than you, not even your financial advisor.
The Broke Architect