When you sit down and look at your household budget, it can be a little shocking to see where your money is actually going.
For instance, you may realize that you are spending a couple of hundred dollars a month on telephone bills, or on entertainment, or salon visits…or all of the above.
Financial advisors have a spending formula that they generally recommend for your household net income.
Net income is the paycheck that you actually take home (not counting withdrawals to your 401k or other savings plan – that counts as savings.)
They recommend that families spend approximately 35 percent of their month income on housing, which includes utilities, maintenance, repairs, etc.
They recommend spending about 15 percent on repaying debt.
They recommend spending about 15 percent on transportation – car payments and gasoline and maintenance and car insurance, or bus/subway fare.
They recommend putting 10 percent into savings.
They recommend putting the remaining 25 percent into other expenses including groceries, entertainment, gifts, travel, continuing education, gym, barbershop or salon, etc. You can’t ignore these areas when you are planning your household budgeting.
Now, of course this can vary – although you should ALWAYS put at least 10 percent into savings. If you are very deeply in debt and have money that you can take from other areas to put towards paying down debt faster, that is definitely advisable.
If you earn a lot of money, then it’s certainly advisable to put a higher percentage of one’s money into debt and savings – but most of us don’t earn a lot of money, so it’s not really an issue.
The percentages will vary somewhat depending on your life circumstances, but this is a picture of what a healthy household budget should look like.
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