Saturday, July 02, 2005

Recommended Spending Allocations

Taking my post on "How Much Grocery Spending?" a step further, I found a budgeting tool at CNN/Money which might help some folks to see where they're overspending.

CNN/Money: Money 101 - The Ideal Budget

You'll input your income and current spending in respect to the usual categories (house payment, credit-card payments, auto payments, taxes, etc.). The calculator tells you what percentage of your gross monthly income these things comprise, and shows you what the "recommended allocations" for each category group are.

For the sake of simplicity, here's what the CNN/Money calculator recommends. Percentages are of gross income:

Housing & Debt:30%
Insurance: 4%
Savings & Investment: 15%
Living Expenses: 26%

Here's my take: The value of these particular recommendations is questionable, at best. If you're spending 30 percent of your gross income on debt payments, that's too much — way too much. (I have only a house payment, and since the insurance and property tax part of that gets factored elsewhere, I'm spending less than 10 percent in this category.)

If you're only spending 4 percent of your gross income on insurance, you're in a world by yourself. (I have entries for each of the six categories listed, and I'm spending over 20 percent of my gross monthy income here.)

Again, there are more details and (better, in my opinion) recommendations for this sort of thing on my Balanced Money Formula page.


— Posted by Michael @ 5:52 PM


Wow - I just calculated my insurance costs - they are 5% of my gross salary. The reasons? I am single, have no dependents and own a condo, which translates into lower homeowners insurance costs (yes, even with the 4 hurricanes that hit Florida last year)


I recomend 20% on retirement savings, and 10% on pre-retirement savings.

Money and Investing


I am curious about whether life insurance falls under must-haves. With a two-income family that includes two school-age kids, we consider life insurance needed to replace each income. Dropping a term life insurance policy is an option during a financial setback. But buying a new policy later would likely cost significantly more.

Anonymous Anonymous
, at 7:26 PM, July 05, 2005  
** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]