I keep seeing these annoying guidelines that say you should spend "30% of your income on housing, 10% savings, 15% debt repayment, etc..)
While I find them ridiculous because they imply "one fits all" approach, while one can be a family with no kids vs. 4 kids, middle-of-nowhere vs. HCOL, 20 year old vs 70, etc...)
Or if person A spends 30% on housing and 15% on debt repayment, are they really better off than the one who spends spends nothing on debt repayment and 45% on housing? Most financial experts would only yell at the person #2, because he wouldn't fit the chart.
I wanted to make a pie graph of our budget just out of curiosity. But I wonder how these things are calculated. I assume this goes for after-tax figure.
But some things come out pre-tax. I don't count health insurance premiums. I mean 401K, health spending accounts, dependent care accounts.
Would I count the numbers that I receive as a benefit or the money it would have been post-tax? And does it gets mixed in together in the pie chart?
For example, say you put 1K a month in your 401K. If you didn't, you would have $650 more in your take-home pay.
So should you consider that $1,000 is going to your savings(because it is actually going to your saving) or that $650 is going to your savings because this is what you are deducting from your take home salary to the savings category?
Same with pre-tax childcare and medical expences, which would be under "life" category. But if you count pre-tax expences/savings together with post tax without adjusting, it may appear that your salary is actually larger than it is. But if not, than you are not accounting for the actual money you get to spend or contribute.
Your thoughts?
How do you calculate percentages for your budget?
October 24th, 2011 at 10:05 pm
October 24th, 2011 at 10:44 pm 1319492688
Average rules of thumb work if you are average. Personally I don't find them to be very useful.
October 25th, 2011 at 05:32 am 1319517177
I do have a spreadsheet where I separate my household's use of our gross income. I separate into "Needs," Wants" and "Savings/extra debt repayment." The sweet spot according to some gurus is 50%/30%/20%. Mine actually comes out to about 51%/24%/25%, but I think since I have a lot of debt it's right to put more in the saving/debt repayment category at least for now.
When we have windfall money, it gets about evenly divided between Wants and Savings/Debt Repayment, so absolute total spending ratios are probably a bit different. I just figure mine based on a regular month's budget.