How much did you spend last year on entertainment? Food? Gasoline? Most of us have no idea. Figuring out how much you spend and where you spend it will allow you to make adjustments to your household budget and to meet your financial goals. Getting out of debt, building an emergency savings fund, and saving for a down payment all require a spending plan, and you need to establish your starting point before you map out a strategy. We are here to show you the ideal spending plan, one that will help you meet multiple financial goals.
To determine your average annual costs for categorical spending, you’ll need to track your daily expenses for several months. Make sure to account for less obvious payments that are automatically deducted from your paycheck, added to your mortgage, or applied to your credit card such as health insurance, property taxes/insurance and gym memberships, respectively. Clearpoint Credit Counseling Solutions (CCCS) highly recommends tracking your spending and offers detailed instructions on how to do so.
Once you’ve come up with your numbers, you will determine some household budget percentages.Calculate the percentage of your annual gross income that you spend in each area. Then reference the chart below, released in April 2009, by the U.S. Department’s Bureau of Labor Statistics based on its most recent Consumer Expenditure Survey.
Are you surprised at how your budget allocations and household budget percentages compare to the averages? Seeing the cold hard facts is often enough to motivate and encourage changes in our spending behavior. In the case of a family with two children between paying for cable, going to the movies, taking vacations, buying mp3s and lottery tickets–it is likely that they have spent $7,100 a year on entertainment and haven’t saved for their children’s college educations. It is enough to make you consider shifting your priorities and making a more balanced spending plan.
Your budget has to fit your lifestyle. A liberal spender making $200,000 a year, for instance, might allocate more than 10 percent of his or her income to transportation because the family regularly leases new luxury cars. More cautious spenders with the same income might allocate much less to that category because their families buy older, moderately-priced cars, and drive them until they wear out. As a result, the conservative spender has more funds left to allocate to savings. So, even with the same income, their spending plan and budget percentages will differ.
Division of a household budget depends upon a particular family’s income, lifestyle, and financial goals. In general, financial experts recommend that we live on no more than 70% of our net income (including housing). At least 10% should be dedicated to savings and no more than 20% spent on consumer debt such as credit cards and car loans.
Now that you have a spending plan for reference, you can plan your next course of action. With these figures in hand, go calculate your debt-to-income ratio. Then, if your debt exceeds 15% of your spending, the credit counselors at nonprofit Clearpoint Credit Counseling Solutions can give you a free budget review and help you get out of debt. Call 800.750.2227 (CCCS) to make a no-cost appointment.
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