Bankruptcy expert Sen. Elizabeth Warren, D-Mass.,recommends a budget where you spend roughly 50% of your after-tax dollars on necessities, 30% on wants, and at least 20% on savings and debt repayment. This plan is very simple to implement and you can use the calculator below to plan your after-tax dollars.
Your needs will cover all the following
- Car (fuel,insurance etc.)
- Cell Phone payments
- Health Insurance (if already not deducted from your income
- Any other loan payments
If your necessities can’t be covered with the 50% portion of your after-tax income, you will need to break into the ‘wants’ portion. We recommend visiting these payments every quarter to figure out if they can be brought below the 50% mark.
Wants will cover the following
- Restaurant you always wanted to visit
- Expensive piece of furniture you wanted to buy
- Expensive watch you always had an eye on
- The new iPhone that seemed out of budget
Savings and Debt Payments (20%)
This can cover the following
- Emergency fund for non foreseen expenses (medical, etc.)
- For your dreams (can be a dream house, dream college you wanted to get into, dream franchise you wanted to buy etc.)
If the Necessities grow more than 50% of your income, you may wanna dip into wants
If the wants are less than 30% of your income or necessities are less than 50%, rest goes to saving
There is a thin line between wants and needs which needs to be addressed individually and focus should always be to maximize savings.
Once the above formula helps your portion your income, we would recommend taking the following steps:
- Setup different bank accounts for each of the portions (necessities, wants and savings)
- Apply for Credit Cards with good sign-up bonus which can then be used to full-fill wants (Click Here)
- Find new ways to save money (re-financing mortgage, buying less expensive coffee once a week, etc)
Please comment below with some of the ways you save money today !!