October 6, 2016 § Leave a comment
Budgeting is one of the things I discuss often with just about everyone who comes into the office. Even with folks close to retirement, we discuss again what their retirement budget might look like and how to expand or contract things based on cash flow.
So let’s talk about budgets. I prefer to deal with this starting with FIXED expenses and always as a percentage of what you have, even if you practice charitable giving or tithing, the money you have left is the 100% from which we begin calculations. If in any of these calculations you find yourself over the recommended percentage, that’s fine. But it is the reason why spending for things besides bills, or the category called LIFE, feels tight.
- First and most substantial fixed expense is HOUSING. This accounts for 35%. It includes more than your mortgage and insurance. This 35% also includes utilities, such as electricity, gas and water. It also includes a savings category call ‘maintenance,’ which equals 1% of the value of your home set aside each year for repairs. Ex. If you house appraises at $100,000, save $1,000 a year for maintenance.
- Second largest fixed expense, at 15%, is TRANSPORTATION. As with housing the category does not only include car payments. It also covers insurance, gas and ‘maintenance.’ I would say that means estimating the cost of tires, oil changes and registration. Add up you annual expenses, then divide that number by 12- since our payments are usually on a monthly basis.
- Next, also at 15%, is debt repayment. If, in learning the hard lessons of life, your debt repayment far exceeds the 15%, you have probably figured out that that’s the reason there is little fun money.
- The last fixed category is SAVINGS at 10%.
- The rest of your money, 25% in this example, is for LIFE. That covers allowances for the kids, vet visits for the pest, food and eating out, clothing, gifts and vacations.
If you are not saving and you have little money for LIFE using this percentage budget you can more easily see what is causing the squeeze.