These percentages aren’t without purpose, they weren’t chosen arbitrarily.ĥ0% of the take-home pay should cover all essential needs. 100% of the take-home is allocated to these categories. For example, saving up for a new TV, cable/internet bill, or the newest gaming console.īy now it should be obvious that the 50/20/30 rule totals out to 100. This is usually things a person wants but not necessarily needs to survive. 30 – 30% is what to devote to variable monthly expenses.Investments and debt-reduction (credit card payments) can also fall under this category. 20 – 20% of the take-home pay is what to devote to savings and financial goals.Examples are rent/mortgage, utilities, groceries, travel to and from work (car payments), and cell phone bills. These are monthly expenses that are essential. 50 – 50% or half of the take-home pay is what to devote to fixed monthly expenses.Meaning, what percentage of take-home pay will a person devote to what category. Let’s take a closer look at the 50/20/30 rule and what it means for breaking up average monthly expenses. This break down is commonly referred to as the 50/20/30 rule. Let’s break monthly expenses down into three main categories: Fixed costs, Variable costs, and Savings. Let’s now take a look at breaking down what would be average monthly expenses. This makes the take-home amount only $45,000.įor this scenario, the $45,000 will be the amount of income to go towards the average monthly expenses. This means that person would pay around 15,000 in taxes. For example, a person filing single and making $60,000 a year would be in the 25% tax bracket. There are six different tax brackets for each federal filing status: 10, 15, 25, 28, 33, and 35. The first step in determining the proper take home amount is to determine the tax bracket. That $60,000 is the gross annual income and is the amount a person makes before taxes. Just because a person makes $60,000 a year does not mean they bring home that amount. The first thing to consider when determining the amount of income to devote to average monthly expenses is to determine the tax bracket an individual falls into and from there the take-home pay. Continue reading to learn how much income should go to average monthly expenses, how to average out fluctuating bills, and the best way to help build up a savings account. How exactly does someone average the cost of something - such as gas prices, groceries, and heating and power bills - that fluctuate. The reason for this is the seemingly impossible task of actually averaging monthly expenses. One of the biggest issues with creating an appropriate budget is determining how much income a person will devote to average monthly expenses. Even when there is a surplus of income, such as tax returns.Īll that is much easier said than done. Saving is about creating the right budget for debt to income ratio, living within that budget, and ensuring adherence to the budget. Even though it may seem this way to those who can’t save at all, no matter how hard they try. Those who are good at saving are not wizards. There are those who are absolutely brilliant at saving money, and those who seem to never have enough left over after bills to do anything with.
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