It’s an unfortunate thing to realize anything in life is finite. Even more upsetting to me is that in your life, you only have 100 percent of your money to spend.
We’ll never know the exact dollar amount of that 100 percent—it could be $100,000 or $1,000,000—so let’s focus on percentages alone. If you have $150,000 of income for 2018 and you spend $165,000 you have spent 110 percent of your money which means you have gone into debt by $15,000. That’s what overspending looks like at its core. If you spend more than 100 percent of your income, you will go into debt. And that debt will accrue interest. And then you’ll be more in debt. If you have student loans or credit card debt or a mortgage, you know what I’m talking about.
So let’s take a realistic look at how your money breaks down and some tips for keeping more of it for yourself!
Let’s create a hypothetical person for this exercise. We’ll call her Dollah Billz (my dream drag name). In 2018, Ms. Billz has an annual income of $100,000, so $100,000 equals 100 percent. The first thing she has to do is account for taxes. I’m not an accountant so we are going to use hypothetical numbers based on average tax rates over time, where federal, state, and local income tax eats up about 35 percent of your income. (Talk to your accountant before finalizing this number in your personal plan.)
$100,000 (100 percent) – $35,000 (35 percent) = $65,000 (65 percent left)
Right off the bat, Dollah is down to $65,000. Let’s say our girl lives in New York City so her rent will probably fall, as a minimum, around $1,500 a month or $18,000 a year.
Income ($100,000) – taxes ($35,000) – rent ($18,000) = $47,000 (47 percent)
Before feeding herself, paying bills, getting coffee, going on vacation, paying for her MetroCard ($1,452 annually, so 1.45 percent), she is down to less than half of her income. This is exactly where the trouble starts: before Dollah gets to buy new headshot outfits, she has to protect what she has now and save for the future.
Insurance costs are difficult to predict since they vary tremendously from person to person so I’m going to use a flat eight percent ($8,000) to include health insurance, auto insurance, homeowners/renters insurance, life insurance, disability insurance, etc.
Income ($100,000) – taxes ($35,000) – rent ($18,000) – insurance ($8,000) = $39,000 (39 percent)
Now add your savings. Here’s the deal with savings: it’s the money you put aside to pay for future you and everything future you wants to do. Some people call it an emergency fund, but let’s call it a Life Events Fund. It’s there to absorb the good and the bad. The ideal savings percentage is 20 percent. Let’s add it to our chart.
Income ($100,000) – taxes ($35,000) – rent ($18,000) – insurance ($8,000) – savings ($20,000) = $19,000 (19 percent)
Based solely on math, our girl is left with $1,584 a month to cover everything else. Take a minute for yourself here, maybe scroll through your credit card bill, bank statements, etc. Is this enough for you? Probably not. Humans crave instant gratification so instead of spending less, we save less. We scrimp on insurances and ignore legal documents in favor of looking like we have the money for those instant gratification purchases.
Now that we’ve done the depressing math, here are some ways to maximize the money you have left for lifestyle.
Prioritize your spending to create instant gratification. Say you were going to take a car service somewhere. Take a minute and really think about if that expense is more important than everything else you want to spend money on. If it is, great! Cab away. If it’s not, don’t take that car and instead transfer what you would have spent directly into your savings account. Boom, instant value created.
Spend only cash for a week. We use plastic so much that we forgot we’re spending actual money. Take an informed guess at how much you spend in a week (outside of bills), take that cash out of your bank account, and then leave your debit card at home. See how long that cash lasts you. I’ve rarely seen people make it past Wednesday. Trust that will be a lesson learned.
Review every auto-pay you have set up. Do you still use these things? I still pay for CBS All Access app all year even though I only use it for the Tonys and Big Brother. (Yeah, Big Brother, what about it?!)
Evaluate everything that auto charges your credit card when you make a purchase. Check out how much you really spend on getting food delivered, car services, movies/tv shows on a pay for service?
Take an honest look at your impulse spending. That is generally where money vanishes without us knowing. And then we justify it as a one-time thing. But it isn’t. And you know that deep in your heart.
Last thoughts: if you’re paying your taxes, have efficiently designed insurance policies to protect your stuff, and are saving at least 20 percent, do whatever you want with the rest of your money. You’re already doing great work and you deserve to bask in that glow.
If you aren’t there yet, take a baby step. Start your savings and spending practice. It doesn’t matter if you start at five percent or jump in whole hog to make up for lost time at 40 percent, you are a winner. And you got this.
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The views expressed in this article are solely that of the individual(s) providing them,
and do not necessarily reflect the opinions of Backstage or its staff.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Certified Financial Services is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 2018-61741 Exp. 6/20.