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How Much Money Should you Spend on Living Expenses?

How Much Money Should you Spend on Living Expenses?

Living expenses are the costs to live. You can’t get around them because you need a roof over your head, clothes on your body, proper medical care, utilities in your home, and food on the table.

But, you can manage how much you spend on your living expenses so that you don’t end up in over your head in debt. If you’re already there, dealing with too much debt, a debt reduction plan can be a part of your budget, contact a debt expert for advice, so you are able to focus on your living expenses and achieve your financial goals.

The Ideal Amount to Spend on Living Expenses

What is the ideal amount to spend on living expenses?

Of course, the answer is as little as possible. The more money you can save, the less you’ll have to worry about credit and debt.

Ideally, 60% or less of your income should cover your living expenses. This number will change based on where you live, your family size, and your family dynamics. For example, do you pay for child care, private education, or college? These factors will affect your living expenses.

In general, aim for the following percentages:

  • 35% for housing
  • 15% for transportation
  • 10% – 20% for food
  • 5% for clothing
  • 5% for utilities (cable, internet, cellphones, etc.)
  • 10% for savings
  • 10% for debt reduction
  • 10% for discretionary spending

Your housing costs should include your mortgage, taxes, and utilities (electricity, gas, etc.) and your transportation costs should include car payments, gas, insurance, and car maintenance.

Adjusting your Expenses According to your Income

Adjusting your Expenses According to your Income

Did you notice we said above ‘ideal’ living expenses? These percentages won’t work for everyone, but they are a good starting point.

You should adjust your expenses according to your income, and your family dynamic. For example, you may not need 15% for transportation if you take public transportation or own your car without a car payment.

But you may spend over 20% of your income on food if you have a large family. You may also not have any credit and debt right now, so you wouldn’t have to allocate 10% of your income to debt reduction.

Make Sure you Don’t Spend More than you Make

The key is to not spend more than you make. If your expenses total up to more than you make, then you’ll always face debt issues and wonder about debt reduction.

You might spend more than you make and not even realize it, though. A quick way to find out is to pull your bank statements from the last few months and add up your spending. 

First, determine, do you spend more than you make? If so, are you using credit cards to keep up, aka extend your income?

If you don’t spend more than you make, but your allocations are much different than what we suggested above, consider revisiting your spending and budget to see how you might improve things.

Understanding Personal/Discretionary Spending

An area most people overspend or find that they spend much more than they want is personal/discretionary spending. In our example, we suggested that 10% of your income should be allocated for personal/discretionary spending.

That’s not a hard and fast rule by any means. You could spend more or less than that amount, but keep it reasonable. 

How much you spend in this category fully depends on your situation. What expenses do you have that arent’ housing, transportation, food, clothing, or utility related? For most people the expenses that come up the most are childcare. If you have children in daycare, it could take up more than 10% of your income, leaving you with no discretionary income to spend on what you want to spend it on.

It’s important to have some ‘fun money’ so you don’t end up splurging using credit and debt to get what you want. 

Make Sure you Always Save Money

If that’s the case, adjust your budget accordingly so that you spend less in another category. For example, if you have high childcare costs, consider lowering your transportation or utility costs to leave more room for discretionary spending.

You always have the choice to adjust your expenses, putting you in charge. For example, you need somewhere to live, but it doesn’t have to be somewhere that you can’t afford or that takes up so much of your income that you can’t afford anything else.

Make Sure you Always Save Money

No matter how much your expenses are, you should always have room for saving. You can see in our suggestions that we include 10% of your income for saving. This is a benchmark, but you can save more or less than this.

The key is to have an emergency fund so you don’t have to rely on credit and debt to get you through something you might have been able to pay for with your emergency fund. You should also consider saving for other life events, such as retirement, vacations, buying a house, or your child’s college education.

If you can’t save 10% of your income right away, try building up to it by cutting back on certain living expenses so you can save more.

Final Thoughts

So how much should you spend on living expenses?

It depends.

Look at your budget, see how much you should spend and then compare it to what you do spend. It’s okay if some of your categories have many different allocations than we suggest as long as you don’t spend more than you make and you hit all the important categories including savings and debt reduction.

If you need help figuring out how to lower your living expenses or you don’t think debt reduction is a possibility given your income, contact us today. Our professionals will help you see where you can cut back and how to get out of debt once and for all. We’ll create a plan that’s feasible, allows you to see success, and enables you to take control over your money rather than your money controlling you.

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