Monday, November 1, 2010

Rule of Thumb for Your Major Expenses

     Do you consider what your monthly payments will be when shopping for a house, apartment, or car?  You'll be in financial hot water if you aren't careful.  The following rule of thumbs will keep you in the clear.  If you can get a handle on these major expenses, the rest should follow suit. 

1.     Monthly housing payment  This includes taxes, insurance, interest, principal, utilities, and maintenance.  Everything should be no higher than 25% of your take home pay.   

2.     Monthly transportation  This shouldn't be any more than 10% of your take home pay.  This includes both cars if you have two vehicles.  10% seems like a small amount, but remember that you should buy used, not new.  If you aren't convinced to buy used, make sure to read Should I Buy a New or Used Vehicle.

3.     Retirement  If you don't budget for it now, you'll never save.  Remember that tomorrow never comes, so start saving money today!  You should be socking away at least 20% of your gross pay.  Make sure to take full advantage of your employer retirement match on top of your 20% contribution.
      It's obvious that these rule of thumbs are tough to live by.  If you can keep it up, you are well on your way to a comfortable life and even better retirement.  Make sure to read Your Guide to Think Like the Rich.

What are your percentages?


  1. Great Post! I know that we spend much more on our vehicles and we should really put that car money into retirement.

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