A simple, but really useful financial tip I'd like to share with all of you is this concept of looking at your household as though it's a business when reviewing your finances. And what I mean by that is: what is the overhead you have in place? What are the known bills that you will be paying, even if you decide to spend the entire next month in bed, eating bon bons.
You will be paying your rent or your mortgage. You'll be paying your electricity. You'll be paying your cell phone bill. You'll be paying for the internet. Some of you still have cable you'll be paying for that. Any other subscriptions, Netflix, maybe the New York times, what are those recurring expenses that you know, the amount and, you know, you will be paying?
Ideally, those expenses are not more than half of what you're bringing home. And when I say what you're bringing home, what's actually being deposited in your bank account after taxes, after 401k contributions? After paying for your health insurance and whatever else comes out of your paycheck, what is the net amount that's going into your bank account each month?
Ideally, I know that's not always possible if you're living in a big city, if you're at the beginning of your career, but ideally that overhead that you have in place is not more than half of what you're putting in your bank account each month, so that you still have 10 to 20% of your earnings to put into a savings account, to be saving towards a larger vacation, to save towards all the Christmas gifts you buy in December, to save for that rainy day when it suddenly comes raining through your roof, just make sure you have savings in the bank.
And that you're putting away 10 to 20% of what you're bringing home each month. And then if your fixed costs aren't too high, you have room both for savings and fun. You want a third to 40% of what you're earning each month to go towards what I considered this big pot of fun. I don't care if you're going out to eat or buying a new pair of shoes or seeing a show or seeing a movie or ordering in. It's not important.
What's important is that you haven't put so much overhead in place that you don't have room for fun and you don't have room to save. So I've always found this relatively simple rule of thumb to use: 50 for needs, 10 to 20 for savings. And then in the middle 30 to 40% for fun.
I hope this is helpful.
I'm Laura Rotter from True Abundance Advisors, urging you to use your money to live life on purpose.