FTC: I am not a financial advisor and this post is not sponsored. This is just friendly info from one millennial to another.
One of the worst feelings is living paycheck to paycheck. Sometimes this occurs because our expenses are far more than what we bring home on a weekly or bi-weekly cycle. Other times, living paycheck to paycheck is caused by our misuse of our monthly income. That is the topic I’ll be covered here in this post today. Misuse of funds will always keep us from living our best budgeting lives. In divvying up your paycheck properly you will see great success in increasing your savings, enjoying more fun moments in life while decreasing the guilt that can often times come along with it.
The percentages I’m going to mention are a loose guide that should work for most. You still want to keep in mind your specific needs, lifestyle, and situations as they arise.
How To Divvy Up Your Paycheck
When you think of your check you want to look at it as a pie. Whether its an apple pie, pizza pie, or pie graph… you need to look at your check as a circle with pieces that have to be used for very particular things.
Housing (35%): Thirty five percent of your monthly income should go towards your rent and or mortgage. Besides this your utilities and home owners insurance should also be included in that thirty five percent. As of right now, I am spending quite a bit more than 35% of my income (after taxes) on housing. Here’s the tricky part of the calculations. Most of the times people are talking about the adjusted gross income which is before your taxes. Before taxes I am below the 35% mark, after taxes… I’m far above. I like to focus on how much I am bringing home after taxes because that’s in fact how much I can use to pay my bills. Before taxes doesn’t mean squat to me!
Food (15%): We gotta have a roof over our heads, and we have to eat. So… it only makes sense that the next largest amount of money in our paychecks is going towards food. The fifteen percent you use counts for food shopping and meals at home as well as eating out. This can balloon really weekly because like I said… you gotta eat. Try to lower your use of your food budget by food shopping and meal planning instead of heading out to eat.
Transportation (12%): I love taking an UBER XL as much as the next New Yorker, but with an unlimited metro card my ass needs to be on that train heading to work. Besides commuting to work, I also have a car. This means car insurance and gas are a part of the 12% of the transportation money coming out of my monthly income. I luckily do not have a car payment, but if you do this is also a part of the 12%. The last thing you want to keep in mind is if you do have a car, any unexpected expenses like repairs will have to be accounted for in that 12%, so you can see that this twelve percent can increase really quickly out of the blue.
Health Care (5%): I am very lucky to work for the department of education, and do not have to pay for my health care. I also have chosen an insurance policy that doesn’t make require me to pay co-pays for visits. What I do need to pay a co-pay for is my dental, and for any medications I may need.
Debt (8%): Ugh… this is the recommended percentage but I know better so I won’t press this one too hard. Yes your debt shouldn’t take more than 8 percent of your income if you want to live at a decent comfortable financial pace. Unfortunately many of us are up a creek with no paddle, and our loans are far higher than that. As I wind down my debt, I can easily say there were points in my 8 years of paying back loans that took up even more than 25% of my income. Do the best you can to bring it down piece by piece. It will take some time, but if there’s anything I know about millennials is we are resilient and you will tackle this debt with focus and zeal.
Retirement Savings (7%): You may not want to think about retirement but unfortunately time waits for no man. Retirement is not as far away as you think and before you know it, it will be time for you to live off of those funds. I’m currently putting 11% of my income into my retirement savings, and I may or may not increase or decrease that in the near future. You should think about increasing your retirement savings every time you get a raise in at work.
The remaining 18% of your income is where you can really increase or decrease your spending. Your savings for an emergency fund should be 5% of your income. Cellphone and internet should be another 5%, while entertainment rounds it out with 5% as well. The final 3%… you see that is the smallest percentage right) is for clothing. We have way more clothes than we really realize, and adding in “staple pieces” really can’t be an excuse forever. You can drop that 3% down even further by not buying clothes when you don’t need it and using that extra three parent for entertainment or saving in your emergency fund.
Until the next time,
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Hey there! I’m Melissa, co-founder of Trials n Tresses, natural hair and beauty lover, binge tv watcher and lover of life. When I am not creating content for TNT, I’m busy teaching the future of society.