Money is Relevant

by Kristina on July 12, 2010 · 4 comments

hands full of coins money

In the last two years my annual gross income has declined by 34%. Needless to say, I have made some adjustments in my spending habits and my monthly expenses. However, I am in a couple and therefore our household expenses have not changed too much. It is more my personal spending that has been cut.

When you are in a relationship and your income is cut, should your partner also feel the impact?

I know that a lot of people would be happy to make my salary, or in some cases (and more than should be) many people will be happy just to have a job.  Money and spending habits are relevant. Some of us wouldn’t blink an eye on spending $50. But if you only have $100 in your bank account, then $50 is a lot of money.

I keep hearing people say that the market and the economy will get better. I would like to know exactly when that will be!  If and when the market does recover, Will all of the people who are currently unemployed get their jobs back? Will all of the homes in foreclosure suddenly offer mortgages to their former owners? Of course I am hopeful, but that is just not reality. According to a recent article titled Jobs Gone Forever on CNN Money, they confirm that some jobs may not be returning when the market recovers.

It is said that the average person should spend approximately 30% of their net after tax income on housing and approximately 17% on their transportation costs. This includes insurance, gas, parking, financing and/or public transportation including taxi cabs.  Are you within the “norm”? I am not. I spend approximately 39% of my net after tax income on housing costs. I have recently been complaining about the cost of my 2007 Honda Civic.  So, it was no surprise to learn that my transportation costs are also higher than the average.  I currently spend 24% of my monthly net after tax income on my Honda and it’s associated costs such as insurance, gas, parking, and payments.

LizPulliam from MSN Money believes in a 50-30-20 Budget.  This budget allocates 50% of your net after tax income to “Must Haves”, 30% to “Wants”, and 20% to Savings and Debt Payments.

To increase savings capacity Richard Jenkins sticks to a 60/40 budget. He limits his essential spending such as housing, food, insurance, and bills to 60% of his monthly income that will free up 40% of his income into forced savings both registered and non registered.

Some people choose to buy a less expensive house in the suburbs with more square footage. I choose to live in a downtown apartment and therefore I am paying the price for my living situation.  As a DINK where do you and your spouse choose to spend your hard earned money? Take this Savy Spending Quiz on MSN Money to find out.

(Photo by K@ja)

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{ 3 comments… read them below or add one }

1 Jason July 13, 2010 at 11:06 am

Our breakdown is roughly
13% (Gross) Housing
12-15% (Gross) Other bills/ Food/ Transportation/ Spending money
15% (Gross) Retirement Savings
15% (Gross)Taxable Investments
10% (Gross)Cash savings for things like future vacations/replacement cars/ future schooling/ additions to e-fund
The rest we give to uncle SAM and his friends, but typically in the past have gotten some back, which in the past went to debt repayment and now will likely go to cash savings.

We have relatively low expenses because we spent 18 months of gazelle intensity paying off debt following a modified Dave Ramsey plan. The only outstanding debt we have is our house. We may pay slightly more in taxes and get less of a refund this year because we no longer have our student loan interest debt deductions, and are getting a little further into our home loan and less of the payment is going to interest.

I often wonder if we are saving to much, not enough or just right. I sure wish there was a magic formula that made it simple. I sometimes have conflicts between my long term goals (net worth goal by our 40th B-Days still 10 years away) and my short term goals (having new car every three years).

In the end its a compromise right, if I miss my 10 year goal by 10,15 or even 20% I am still 80% better off than I was with no plan at all. Instead of having a brand new car every three years and having having car payments like I use to. I plan a higher end purchase lightly used car ever 5-6 years in cash. Being a car guy this gives me the feeling that those extra 2+ years I have it for will be easier to deal with because I am getting “more” car than I would have.


2 Kristina July 17, 2010 at 9:30 pm

I understand what you are saying about the saving. I get that question a lot from my clients. “How much should I save?” There is no right or wrong answer. 10-20% of your gross income is a good start but it all depends on your personal budget. Congrats for paying off all of your debts!!! That is financial discipline at it’s best. What kind of car are you driving now? When I am ready to buy my next car can I contact you for your advice? My Honda purchase didn’t work out too well. Everytime I ask my Dad he says….”Get a Cadillac.”

3 Tim July 21, 2010 at 12:34 am

until we bought our house, we were:
10% housing
10% all other expenses
80% savings and retirement

we are now,
25% housing
10% all other expenses
65% savings and retirement

how much you should save is highly subjective and contingent upon your financial goals. anything beyond necessary expenses is saving, whether for retirement, a flat screen tv, etc. a generalized percentage breakdown will not necessarily get you where you want to be when you want to be there. i disagree with the notion there is no right answer to “how much should I save”. there is a right answer if there are financial goals. numbers just don’t lie. now assumptions are elastic, though, so that has to be a caveat.

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