Ideal Budget
Based on take-home pay (net income). For further instructions on how best to understand this budget, check out this blog post.
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Based on take-home pay (net income). For further instructions on how best to understand this budget, check out this blog post.
Question about the above pie chart. What catagory do you put life insurance premiums? I put car insurance in with transportation, I just couldn’t decide where to put the other insurance at.
Excellent question. Miscellaneous is the category for life insurance. Or, if you are under on some of your other categories, then you can just use the excess for life insurance. But life insurance is a must. I just figured out my life insurance cost is less than 1% of income. That’s not a rule of thumb by any means. Life insurance costs what it costs. The primary goal is to get the correct amount of life insurance. If you need $500,000, don’t buy $75,000 just because the premium is cheaper. Does that make sense?
Do you consider life insurance a must if you don’t have a spouse or children?
EXCELLENT question. No, but I think it can be excellent hedge. Do you mind if I write a blog post dedicated to this later this week?
Hi Pete, I would like to see a post on this topic (life insurance). I had a similar question while working my way through 60 Days to Change.
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Hi Pete: I’d like to know where you categorize child care or if you have a separate budget for families paying child care.
You have to create room for it. Check out this post: http://petetheplanner.com/2010/08/27/budgeting-for-childcare/
Hey, Pete … where would you place regular investment contributions … 401(k), Roth IRA, stocks? Perhaps those monies would be contributed BEFORE determining your net income? Thanks!
Excellent question. Those things happen before the paycheck makes it’s way home. Well, the 401k at least. The Roth and any other investments would be in the “savings 10%” category. Once you have 3 months expenses in your emergency reserve, then that savings expense changes to investing. Word?
Gotcha … thanks!
Hello pete, i wanted to know, what about taxes?
Taxes are paid before your paycheck hits your checking account. These expenses are all post tax
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Student loans = misc? I just graduated college… well the ceremony is in two weeks!!! and i’m staying at home for a while so the bulk of my pay check (thank god I found a job!) is going into the savings category!
Student loans typically take up about 20% of a new grads income. That means that you need to cut expenses in the other categories.
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How about someone who is older than 55 who is going back to college and will have student loans? Any words of wisdom for the older generation?
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I just received 60 minutes to Change in the mail. My question is, why do you suggest paying debt from smallest to largest instead of highest interest to lowest interest?
Imagine setting out to lose weight. Things are going well, and then something happens: nothing. That’s right. Nothing happens. For 3 weeks you don’t lose a single pound. Uh oh. Most people, in this situation, fold. They give up. They go eat a cheeseburger. Paying on the highest interest rate does the exact same thing. It takes longer to get to zero balances, you have no momentum, no small victories and human nature is likely to take over. You are more likely to give up. Math would tell us that paying high interest rate cards is the best idea. But math isn’t the issue.
What is the best way to determine a budget when our monthly income can change significantly from month to month??
Tiffany, make sure that you are finding your “base” pay. You need to set your spending off of a three month running average of your expenses. Don’t average your income based on the entire year, base it on the last three months. In good months, save money. In bad months, draw from that money.
It would appear I’m spending *slightly* too much in the clothing category.
What do you think is the easiest place for people to begin ‘cutting back’? (I’m guessing clothes).
I think medical is the easiest to cut back on, as well as transportation.
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Great guide, Pete; I’ve been using it for months. But where does vacation fit in this? The Misc. 3%?