By Paul Sisolak, Go Banking Rates
Money is like life — it’s what we make of it. For every person with a $2,000 paycheck, most of it spent within a week, there’s another person with the same take-home pay who stashes the majority of his $2,000 in a savings account: two sides of the same financially irresponsible coin.
How to divide you paycheck? (Go Banking Rates)
Then there are those who take their $2,000 and find the most perfect balance of spending and saving. These people have no debt, live within their means and have funds left over at the end of each month. They’ve learned how to budget properly.
Different financial experts give different suggestions for how we should divide up our paychecks. Should we set aside 50 percent for rent? And 15 percent for food? Or 100 percent for transportation? Do our wants or needs come first, and how do we quantify them?
In this next installment of our paycheck series, you’ll find there’s no concrete rule to setting a budget — but finding the right plan for your finances will make all the difference in the last few days before that next paycheck comes through. Keep reading!
1. Divvying Up Those Dollars the Jean Chatzky Way
We can get by without many of today’s amenities, but we all need a home. Common financial advice maintains that you should be saving roughly one-third of your paycheck towards housing — that can include rent, mortgage, home insurance, maintenance and taxes.
Some recommend 30 percent; Jean Chatzky of NBC Today, on the other hand, says that 35 percent is more like it. Either way, this is where a large chunk of your income should be used.
Likewise, experts advise setting aside anywhere from 10 to 15 percent for transportation — car payments, gas, insurance — though up to 20 percent is recommended by agencies like the Credit Counselling Society (CCS).
You should also be devoting 5 to 10 percent each to saving money and repaying debt, with another 15 percent toward clothing, entertainment and miscellaneous expenses. The CCS is even more specific on this point, saying that 3 percent should go to medical expenses, no more than 5 percent to clothing, and discretionary spending shouldn’t exceed 10 percent.
Chatzky recommends budgeting no more than 75 percent of your pay toward all of your expenses, leaving 25 percent for miscellaneous or flexible spending/saving.
Read the full article HERE.
