50% Needs (60% may be required in Hawai'i)
Mortgage, Rent, Utilities, Insurance (Car, health, home), Transportation
Food is often listed here, but could be under Wants
20% Savings/Investments
Personal savings for fun, travel, celebrations
Investing (e.g. $500/month to max IRA contributions)
30% Wants
Things that you can live without
Cell phones, television/internet, gym memberships
Often may include mechanical expenses (fixing things in your home/car)
Food for Thought:
Prior to your first career paycheck you have been living on a meager income from part time jobs or being supported by your parents.
When your income increases dramatically, it is important to set aside your money for long term investing and monthly expenses.
If you only had $1,000/month (net income) from your part time job and you now make $3,000/month (net income), will you miss $500 or even $1,000 to invest in your future? The answer should be 'no' because you lived on less this entire time.
Each month make it a point to at least max out your IRA ($500/month; $6,000/annually) and set aside other monies for emergencies
Think About it 1: Budget
You make $4,500/month after taxes (what is deposited into your bank account)
How much can you spend on your Needs?
How much can you spend on your Wants?
How much should you be Saving at a minimum?
What should you do with any monies you do not spend from your Needs, Wants, and Savings?
You and your spouse make $10,000/month after taxes
How much can you spend on your Needs?
How much can you spend on your Wants?
How much should you be Saving at a minimum?
What should you do with any monies you do not spend from your Needs, Wants, and Savings?
Think About it 2: Budget
Would you use the 50/20/30 Rule, or some other variation (60/20/20, 50/40/10, 60,30,10) ?
Food for Thought: Paying down College Loans or Home Mortgage or Maxing out your IRA
MAX OUT YOUR IRA
Why do we want to contribute to our IRA instead of using it towards loans?
Short and simple, because this secures your future and enables you to retire early
Warren Buffet always says, "Time in the market is more important than timing the market".
I will 100% agree with this sentiment for long term investing (we know we can time the market in the short term to make gains)
The more time in the market for long term investments gives us more time for compounding our investment and for dollar cost averaging
Interest from your investments will outpace your savings from paying down loans
What is the interest rate of your loan (3%)?
What is the annual return (interest/growth) on your investment (9%)?
Based on that simple analysis you can see why it is important to MAX OUT your IRA
Getting rid of debt and investing in your future go hand in hand. Find a way to invest in your future while becoming debt free.