Continuing from yesterday’s conversation with Pete the Planner about how to better manage your money if you struggle with impulsive spending and disorganization. In this episode, Pete shares a couple of neat things:
1. The top 4 things you should be spending money on and what percentage of your income (after taxes, insurance and retirement funds are pulled out) they should be: 25% should go to housing expense (ie. rent/mortgage); 15% towards transportation (ie. car payment, gas & insurance or public transportation fares); 12% towards food whether it’s groceries or eating out and then 10% should go into a savings account. Only 5% should be your “play money”.
Let’s use a simple example with round numbers! Let’s say your monthly paycheck is $3000 (after you pay for taxes, insurance and contribute to your IRA), that means that your housing expense shouldn’t be more than $750 a month, your transportation costs should be under $450 a month, your food bill should be less than $360 a month and you should be putting away $300 for a rainy day. 5% of $3000 is $90. That’s your play money! The remainder of the funds will be going to utility bills, childcare expenses, your phone and whatever other necessities you have to make your world go around. Key word there is necessities!
I like how this is all broken down – it really is a nice guide to help figure out how you should structure your budget and live within your means. Granted, no formula is perfect and I know that the above breakdown might not be realistic for some of you, but it’s something to aim towards or teach your kids at the very least!
2. Most of the impulsive spending happens usually happens in the “play money” category. Pete says that it’s okay to spend a little on whatever your “vice” is – be it LEGO kits 😀 or fancy shoes, but that your play money needs to be only about 5% of your income otherwise that’s where you get in trouble.
3. Try using mint.com to track your expenses AND remind you when you have overspent. Once you set up a budget in Mint.com, it will email you automatically anytime you go over your budget. Mint.com is not only online, but also has an app. Bonus!