Saving money is a challenge for the 99 percent.
Once you get your take-home pay, and then pay all your bills, is there anything left for savings.
Hey, I know. I get paid twice a month on the first and fifthteenth. I pay my rent and student loan on the first, and on the fifthteenth I pay my credit cards and health insurance premium. That’s about half of my take-home pay for each paycheck.
I worked with a Certified Financial Planner and we used one popular budgeting plan which is called the 50/20/30 guideline. Instead of tracking every expense, it puts your expenses into one of three groups:
- Fixed Costs, or bills that don’t change from month to month. Rent, Car payment, Utility bills. You can also include your spa membership or Hulu — anything that stays the same from month to month.
- Financial targets, or setting aside money to paying off your credit card liabilities, retirement and emergency account.
- Variable spending, which includes grocery shopping, eating out, movies, gas, etc.
Let’s take a look at how I should be spending my $36,000 a year salary, which comes to about $2,250 a month:
- Fixed costs:
- Rent: $495
- Transportation: $0 (I just paid off my car loan)
- Utilities: $0 (My utilities are included in my rent)
- Gym: $20 (I should stop this payment because I never go)
- Health insurance. $400 a month
- Car Insurance: $85
- Netflix, Amazon Prime & Hulu: $30
- Financial targets:
- Student loan: $350 a month (I have just under $5,000 left)
- Roth IRA: $0
- Emergency Fund: $0
- Credit cards: $300 (my goal is to pay off my credit card debt next year)
- Flexible spending total:
- Groceries: $300
- Gas: $80
- Entertainment (Movies and Eating Out): $300
Here is how the percentages break down. I am spending about $1,030 on my fixed costs or 46% of my take-home pay. My financial goals, which right now does not include contributing to a Roth IRA or emergency fund, totals $650 a month or 29 percent of my monthly income, which is almost 10 percent more than what I should be spending on my financial needs.
After using 46% and 29% of money for fixed costs and financial goals, I have 25% left for flexible spending, which is 5% less than what the formula calls for.
Right now, I am estimating my flexible spending at $680 a month, which is just $5 more
than the $675 I should be spending in this category.
However, every month I am spending $110 more than I make, and I am not contributing to retirement or emergency fund.
I can decrease my credit card payments to $200 and I can look for other ways to save on my flexible spending, such as going to fewer movie each week or eating out less.
Next time, we will take another look at how I can meet the 50/20/30 formula.