10. Now that I have offered you several tips on how to save more money each month, I will tell you how to spend what little you do have. It is a really simple formula, but it has worked for me and I am a single parent with 2 kids making less than $30,000 per year(I am a college student). If it works for me, it will work for anyone!
First start by writing down your TAKE HOME pay. Lets say it's $2000.00.
Use the 30/30/20/20 rule.
- 30% goes to rent or mortgage payment. So for a take home pay of $2000.00, you should not be spending more than $600 per month on your rent or mortgage. If you find that your rent or mortgage is higher than 30% of your take home pay, you cannot afford to live where you live and it is time to move! Sell your house, or move into a cheaper apartment. If it is LESS than 30%, say your rent is only 550, instead of 600, that extra $50 goes directly to paying off your credit cards and bills on your credit report.
- 30% goes to bills and all monthly expenses. This includes car pmt., insurance, utilities, food, gas, etc. So in this case that would be $600 per month. If it is higher because the car pmt. makes it higher, you need to get a cheaper form of transportation. Either sell the car and take public transportation, or get a cheaper car.
- 20% goes to savings, no questions asked-directly from your paycheck into the savings account. For this example, that would be 400 per month, or 200 per paycheck. This money is to sit there. Do NOT touch it for anything. It needs to grow until it equals 8 months of living expenses. In this case, that amount would be $16,000.00. Then after you have saved that much, your credit cards and bills should be paid off as well by that time and you can start investing or using that 20% towards kid's college educations, or whatever your heart desires.
- 20% is your miscellaneous. This is $400 per month for stuff like clothes, gifts, eating out, co-pays to the Dr. office, etc. If you don't use the full $400 in a month, great! Anything leftover goes towards paying off those credit cards and bills on your credit report faster.
I have used this method and nothing I have done before works better. Like I said before, now that I have that down, time to work on the weight loss! I know this email is windy, but I really wanted to share this information with you and your wife because it can and will help you. I have never shared this with anyone before, but since reading your blog, what can I say? I had to put in my two cents...or shall I say my dollar seventy-five? LOL...If you have any questions or want to exchange any ideas or whatever, shoot me an email anytime! :) Meanwhile, I will be reading your blog to see how you're doing. Hang in there!
I'm really glad Kathryn went to the trouble of sharing all of this, and not just because it gave me nearly a week of blog content.
When I read this, my first reaction was to want to nitpick at certain parts of it. "Well I heard that your rent or house payment shouldn't be more than 25% of your paycheck," or "Pay off your debt first!" or other such silly nitpicking.
None of that is the point. The point is, Kathryn made a plan and stuck to it, and now it's working for her. That's exciting. That's inspiring.
We could sit and quibble endlessly over details, but the point is Kathryn is proof it can be done. She's turned her life around, and has guaranteed that her own life, and that of her two kids, will be better than if she had just rode the wave and seen where life "took her." That's like taking your hands off the wheel of the car in moving traffic.
So please, read her post and glean from it all the parts that are useful. Use what works for you. But don't let the details distract you from the big picture--when you decide what you want and make a plan for going after it, and if you go after it with gusto, you can make it happen.
Thanks, Kathryn, for sharing with everybody. Feel free to weigh in whenever you like!