![]() ![]() And for those staying within the guidelines, any remaining income is theirs to save or spend as they would like. If you’re close to the 50/15/5 target spending and saving amounts, good job. It is important to evaluate your situation and adjust these guidelines as necessary. Our guidelines are intended to serve as a starting point. How to get to 5%: Having this money automatically taken out of a paycheck and deposited in a separate account just for short-term savings can help a person reach this goal. However, if you pay the entire credit card balance every month and get points or cash back for purchases, using a credit card for one-off expenses may make sense. Over time, these balances can be hard to pay off. It's good practice to have some money set aside for random expenses so you won't be tempted to tap into your emergency fund or pay for one of these things by adding to an existing credit card balance. Setting aside 5% of monthly take-home pay can help with these "one-off" expenses. Who hasn't been invited to a wedding-or several? Cracked the screen on a smartphone? Gotten a flat tire? In addition to those, there are certain categories of expenses which are often overlooked for example, maintenance and repairs of cars, field trips for kids, copays for doctor's visits, Christmas gifts, and Halloween costumes, to name a few. While emergency funds are meant for more significant events, like job loss, we also suggest saving a percentage of your pay to cover smaller unplanned expenses. Another strategy is to start by contributing at least enough to meet an employer match, and then if you get a raise or annual bonus, add all or part of these funds to your workplace savings plan or individual retirement account until you have reached the annual contribution limit. How to get to 15%: If contributing that amount right now is not possible, check to see if your employer has a program that automatically increases contributions annually until a goal is met. Starting early, saving consistently, and investing wisely is important, as is saving in tax-advantaged retirement savings accounts such as a 401(k)s, 403(b)s, or IRAs. That includes their contributions and any matching or profit sharing contributions from an employer. That’s why we suggest people consider saving 15% of pretax household income for retirement. In fact, we estimate that about 45% of retirement income will need to come from savings. Social Security probably won’t provide all the money a person needs to live the life they want in retirement. It’s important to save for your future-no matter how young or old you are. Take a look at which essential expenses are most important, and which ones you may be able to cut back on. If you need to significantly reduce your living expenses, consider a less expensive home or apartment. Consider a high-deductible health plan (HDHP), with a health savings account (HSA) to reduce health care costs and get a tax break. ![]() Also consider driving a more affordable car, carpooling, or taking public transportation. Small changes can add up, such as turning the heat down a few degrees in the winter (and turning your AC up a few degrees in the summer), buying-and stocking up on-groceries when they are on sale, and bringing lunch to work. Keep it below 50%: Just because some expenses are essential doesn’t mean they’re not flexible. Debt payments and other obligations-credit card payments, student loan payments, child support, alimony, and life insurance.Transportation-car loan/lease, gas, car insurance, parking, tolls, maintenance, and commuter fares.Health care-health insurance premiums (unless they are made via payroll deduction) and out-of-pocket expenses (e.g., prescriptions, co-payments).Food-groceries only do not include takeout or restaurant meals, unless you really consider them essential, i.e., you never cook and always eat out.Housing-mortgage, rent, property tax, utilities (electricity, etc.), homeowners/renters insurance, and condo/home association fees.Consider allocating no more than 50% of take-home pay to “must-have” expenses, such as: Some expenses simply aren’t optional-you need to eat and you need a place to live.
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