You may have heard of the financial method called 50-30-20. It involves living within the realms of these percentages in this way: 50% on needs (housing, transportation, food and utilities) and 30% on wants (shopping, eating out, entertainment, etc.) and the last 20% for the future in savings. I don't like this method because it assumes everyone can spend 30% on wants. As most of my readers are one-income families, or aiming to be, we have different priorities than most of the world. Our priorities revolve around God and family and the order God established in His Word of marriage with the wife as the keeper of the home and bearing children.
I have created my own slant on this financial pie and it is still 50-30-20 but my categories are different and I believe more livable for most people, especially one-income families:
★ If you do not have an emergency fund, you would take a good chunk of the 20% savings to fund your emergency fund and once that is complete, you can then save for travel and retirement. Most financial experts recommend at least 3-6 months of basic expenses for your emergency fund.
Here is how I divide the categories:
Fixed Expenses:
⭐Mortgage/Rent - mortgage or rent, property taxes and homeowner's insurance
⭐Transportation - auto loan or lease payment
⭐Utilities - electric/gas, water, sewer, trash
⭐Phone & Internet - cell phones and internet service
⭐Insurance - auto insurance, life insurance and any other insurance outside of paycheck deductions
★ Transportation - I used to be of the mindset of no debt outside of a mortgage but I have changed my mind after analyzing our transportation expenses over the years. I have decided I would rather drive a newer vehicle with less needed repairs than have an older vehicle that breaks down and causes stress. I now budget for a low-interest auto loan that fits within our budget and replace our vehicle for a brand new one every 6-8 years while it still has a good trade-in value. If you don't choose to do this, you can then use this sub-category to save for your next vehicle purchase.
Variable Expenses:
⭐Groceries - food and beverages
⭐Gasoline - gasoline for autos
⭐Household Items - toiletries, cleaning supplies, supplements, etc.
⭐Haircuts - haircuts for the males
⭐Miscellaneous - anything that may come up
Savings:
⭐Core Savings - clothing/shoes, furniture, electronics, homeschool curriculum, home and auto maintenance, medical/dental/vision costs outside of premiums, gifts and yearly costs
⭐Travel - day trips, vacations and other travel
⭐Retirement - 401K, IRA and other investments for retirement
★ Yearly costs - these are things that are due once or twice a year like HOA dues, Amazon Prime, ID protection, auto registration renewal, passes to entertainment places, etc. At the start of every January, I will take the entire year of yearly costs from core savings and move it to a separate savings bucket and pull from that when these expenses come up throughout the year.
➤ Core Savings - We don't spend a lot on clothing, we just take from savings as needed, so it doesn't need to be a budgeted item. We also keep our furniture until it is falling apart and that is a rare expense for us now as we are established and have what we need and take care of what we have. If we need a new cell phone, tablet or computer, it comes out of this fund. I try and only buy these things when security updates end for the device and I keep a log of when what expires, so I know when one is needing to replaced. We can usually buy all of our homeschool curriculum with the small tax return we get each year, so only extra things needed for homeschool come out of this bucket. Any home or auto maintenance items also come out of this savings - paint, air filters, weed & feed, oil changes, tires, and brake pads. If an unexpected repair comes up, we use insurance and/or we take from the emergency fund to cover the deductible/repair. All medical, dental and vision costs like copays, glasses and small expenses come from this bucket. Any gifts we may buy for Christmas or birthdays come from here as well. Finally, our yearly costs explained above in italics come from this core savings bucket.
If you can't save 20% of your income then you need to cut back somewhere because you will lean on credit cards and personal loans and find yourself paying interest you didn't need to pay. I believe most couples should aim to save an interest-bearing $200K for retirement - that, along with social security, should be enough to fund a basic lifestyle. Any more is just extra for enjoyment.
I hope this helps you see how we do our finances and ensure that we curtail our spending in certain areas to make room for others.
