![]() ![]() I’m talking about retirement savings here - especially via 401(k)s and IRAs. Step 4: How much should I put aside for retirement?Ī good rule of thumb is to put aside 10% of your pay for the long term. Plus, you’ll have an idea of a few targeted expense areas that you can cut down on to give yourself more money to save and invest. Now you’ll know how much you’ll have left over to spend in the other categories - investing, saving, and guilt-free spending.Once you’ve got a fairly accurate number here, subtract it from your take-home pay.It’s the final cell in the Fixed Costs category called “Other fixed costs.”) (Note that the Guilt-Free Spending Workbook adds this 15% for you, automatically. A flat 15% will likely cover you for things you haven’t figured in, and you can get more accurate as time goes on. For example, you probably didn’t capture car repair, which can cost $400 each time (that’s $33/month). Once you’ve gotten all your expenses filled in, add 15% for all of the other bills and necessary expenditures you haven’t counted yet.A few cents here or there won’t add up to a meaningful amount by the end of the year, so don’t sweat the small stuff. It’s not necessary to be exact, down to the penny. Sure, you may not capture every last expense doing it this way, but it’s 85% of the way there, which is good enough for now. The easiest way to get an idea of what you’ve spent where is to look at your credit card and banking statements. Limit this to the past couple of months to keep things simple. Look at your past spending and fill in all the average monthly dollar amounts for each category. To do this, you’re going to have to dive a little deeper.Fill in the costs and categories you haven’t yet accounted for.Fill in the dollar amounts you know offhand.Let’s walk through this step by step using the Conscious Spending Plan tab: Remember, the goal is a back-of-the-napkin plan here. ![]() Use the 85% solution instead (go for good enough, not perfect). They come up with 60 categories, then they have to maintain it and be ultra precise. IMPORTANT: The biggest mistake people make is OVER-COMPLICATING this. We’re talking only about bills and other fixed costs here.With your Conscious Spending Plan, we’re only working with take-home pay. I also didn’t include taxes (you can search for “IRS withholding calculator” to double-check the amount of taxes your employer “withholds” from each paycheck to pay your taxes).I didn’t include “dining out” or “entertainment,” as those come out of the guilt-free spending category.At the end of the year, if I haven’t spent my “stupid mistakes” money, I save half and I spend the other half.) That changed things quickly, and I currently save $200/month for unexpected expenses. Then, within two months, I had to go to the doctor for $600 and I got a traffic ticket for more than $100. One category I recommend is “stupid mistakes” or “unexpected expenses.” (When I first started, I saved $20/month for unexpected expenses. For example, maybe you don’t have debt to pay off, but you do have monthly expenses for your pets. If you see any glaring omissions of your major spending categories, add them. To find the answer, let’s walk through this step by step. You’d think it would be easy to figure this out, right? Ha! It turns out this is one of the toughest questions in personal finance. Before you can do anything else, you’ve got to figure out how much these add up to. A good rule of thumb is that fixed costs should be 50% to 60% of your take-home pay. Step 3: Calculate your fixed costsįixed costs are the amounts you must pay, like your rent/mortgage, utilities, cell phone, and student loans. ![]() Now, let’s break down how to come up with your numbers for each category. Your spending doesn’t have to match these exactly, but I would be cautious about straying too far from these percentages. The percentages for each category outlined above are my recommended guidelines. Vacations, gifts, house down payment, emergency fund, etc.ĭining out, drinks, movies, clothes, shoes, etc. ![]()
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