There are basic guidelines available for how to allocate your paycheck each month so that the important bills get paid and you put some money away in savings. Figure the allocations on your after-tax salary, which is all you really have to work with anyway. When money is left over, you should allocate some to an emergency fund and another portion for food, clothing, and transportation. Then and only then can you allocate money to your discretionary fund for play. According to Kiplinger’s, based on an annual $35,000 salary, your allocations should take care of your living expenses, allow you to save, go out occasionally and repay your debts.
Flexible expenses are the payments you can modify. Most probably you will need to change your habits, such as to stop drinking the day coffee at the fancy coffee shops.
Food and Clothing
The necessities of life include food and clothing, but what brands and how much you buy is negotiable. When setting up a budget, including groceries, takeout, and restaurants in your total food allocation, which should be about 15 percent of your $35,000 salary. You can put aside your clothing allowance and spend it all at once or purchase items that fit into your budget each month. Either way, plan for your clothing allocation to average about 5 percent of your salary.
Plan on allocating about 15 percent of your $35,000 salary to car payments and insurance, gas and maintenance for your vehicle. You may be able to squeeze a bit more out of your paycheck for entertainment or saving for a special purchase if you don’t drive or if you own your car outright. For example, if you live in a city with a sufficient transportation system, you can probably cut your transportation allocation.
That leaves you about 5 percent to allocate for your hobbies and other interests. Not that it’s unimportant, but your fun and entertainment is the lowest priority and can’t take up more than its fair share if you want to maintain a comfortable life without incurring additional debt. Entertainment expenses include drinks after work, concerts, sports gear and movies. Your vacation money should come out of this pot as well.
Investment advisers recommend paying yourself first to ensure you won’t be left high and dry by the time you retire or if you encounter an emergency. The first allocation should come straight off the top and equal about 10 percent of your salary. You can have the money automatically taken out of your paycheck and deposited in a money market or other liquid account to force you to save. Use direct deposit with your bank to get that setup.
Here is how your portfolio of savings should look like
- Short term goals, such as holidays or change your car. Hard and smart work must be fruitful. I mean you make good money and these savings are great to treat yourself very well. (:
- The middle term is when you decide to change your house to new or might be for a bigger one. This money also could be considered as a kind of support for your family to help them out in difficult times or to finance the marriages of the successors or to ground up business for them.
- Long term investments for retirements. We all have to think about our old ages if we do not want to be a financial load after working years are over. Just count on yourself and you won`t be surprised
- Emergency cash for 12 months, is very important. Anything can happen at any time. Therefore you need emergency cash, I emphasize cash. Hopefully, you will never ever need even to touch this money, but in case of facing financial difficulties, it will come very handy. For example to save your business from bankruptcy, covering expenses in case of complicated situations.
You need to take care of your living arrangements next. Plan to allocate no more than 40 percent of your salary to your rent or mortgage and the utilities. If big cooling bills in the summer and whopping heating bills in the winter hit you hard, you may want to consider a monthly utility payment plan that automatically averages out your utilities so that you pay the same amount every month, alleviating any concerns about whether you’re allocating enough to cover them.
You can’t forget about your debt. Kiplinger recommends an average allocation of about 10 percent to cover your credit card bills and other debt such as student loans. Of course, if you don’t carry any debt, that 10 percent can go toward your savings, vacation plans or large purchases.
Your budget will tell you exactly how much you would have saved for these goals in the given time. A household budget is a guide that helps you live within your means. However, it should not be based on flawed assumptions and incorrect information. A budget that is too ambitious or impractical is likely to fail.
Consclusion and Target Achievements
30% – Rent or mortgage
10% – Utilities (water, sewer, natural gas, electric), renters or homeowners insurance, Internet, cable, phone
15% – Food that you cook at home
10% – Car loan or lease payments and/or public transportation, fuel
10% – Debt repayment (credit cards, revolving charge accounts, personal loans, student loans)
10% – Savings and checking (bank or credit union accounts, additional retirement savings, stocks, bonds, other investments)
5% – Clothes and shoes
5% – Entertainment, including eating out
5% – Vehicle (insurance premium, vehicle registration fee, drivers license renewal, maintenance, and repairs) and other personal expenses