As I’ve been reporting and writing the Financial Fix-Up stories, there are some lessons and tips that have hit home. I’m planning to write a blog at the end of the series with my top take-aways, but here’s one tidbit I wanted to share sooner than later.
My husband and I have a good idea how much we spend each month on different expense categories like food, insurance, housing and clothing. But I didn’t have a good sense of how much we should be spending in each of those categories. Do we spend too much, relative to our income, on transportation or recreation, for example?
Then financial counselor Morgan Almer introduced me, and the Richman family, to PowerPay, a free website that will be discussed more in a Jan. 19 article about the Richmans’ financial counseling session. One section on the site, Spending Plan, offers these suggested ranges for necessary living and other expenses.
Necessary Living Expenses
Housing (including utilities and supplies): 33 to 35 percent
Food: 18 to 25 percent
Transportation: 7 to 9 percent
Clothing: 6 to 12 percent
Medical (dental, prescriptions, health insurance): 6 to 8 percent
Auto insurance: 2 to 3 percent
Life insurance: 2 to 5 percent
Educational advancement: 1 to 2 percent
Credit obligations (including car payment): 12 to 15 percent
Savings: 2 to 10 percent
Recreation/Entertainment (also church, charities): 2 to 10 percent
The PowerPay.org website actually allows you to enter in your monthly take-home pay and the amount you currently spend on each of these categories monthly, so you can see if you’re falling within the recommended range.
What I like about these guidelines is they provide some flexibility based on your priorities and financial reality. My one complaint: I think the recreation/entertainment/church/charity is a little off. So if you tithe, you’re not allowed to have any fun?