Author Topic: What makes sense budget percentage wise? Living/savings/wants?  (Read 1483 times)

zoochadookdook

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Hey all, so I know how much I spend a month on my mortgage, living costs, etc-and how much to expect baseline (side hustle varies per month)

I've been trying to use Mint to track all finances and YNAB for outflow and such-but I have no idea what percentages should be in each category (some say living/housing expenses no more than 30/40% but does that include utilties/insurance/prop taxes/food/gas etc?). I'm also having trouble allocating to a want category. i can save pretty much half my take home and throw it into VTSAX funds (maxed IRA already, don't get an employer 401 yet etc), but I'd like a new driveway/bathroom remodel at some point and am unsure how much to put towards that percentage wise a month.

Google has shown a plethora of different ideas about budget allocation and I just figured I'd check in here to see what the ultra/more conservative side things (I fall between high to medium conservative-I don't spend much more than I have to but I do buy things on occasion)

DadJokes

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #1 on: May 16, 2019, 07:29:52 AM »
It really depends on your income and where your priorities lie, especially in the FI world. Here is our projected breakdown for the next 12 months:

Savings: 43%
Housing: 20%
Utilities: 2%
Food: 6%
Healthcare: 5%
Transportation: 4%
Baby: 3%
Giving: 1%
Dogs: 1%
Media: 2%
Lifestyle: 5%
Taxes: 8%

zoochadookdook

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #2 on: May 16, 2019, 07:38:04 AM »
It really depends on your income and where your priorities lie, especially in the FI world. Here is our projected breakdown for the next 12 months:

Savings: 43%
Housing: 20%
Utilities: 2%
Food: 6%
Healthcare: 5%
Transportation: 4%
Baby: 3%
Giving: 1%
Dogs: 1%
Media: 2%
Lifestyle: 5%
Taxes: 8%

You really break it down! I'm wondering if I should itemize all my living expenses in one category or track monthly. I know i'll have slight varience in bills but I know the average between them all/transportation/groceries. Taxes are taken out so it's all my take home. Healthcare I'm shopping for right now as I need it in the next 2 weeks

RWD

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #3 on: May 16, 2019, 07:49:37 AM »
As a Mustachian you should decouple your income from your spending, so figuring this out is [at least] a two step process. First, you should figure out how much you want/need to live on (before breaking it down into categories). Then whatever remains is going to savings/taxes. Step two is to allocate the expenses portion into categories. That way your income (and taxes) won't affect the calculations for expense category percentages.

I have a full breakdown of our expenses on my journal, but here is a simplified list with percentages (average over tracking seven years):
Food/consumables: 11%
Autos: 18%
Entertainment: 3%
Housing: 34%
Utilities: 8%
Other: 26%

Again, keep in mind those are the percentages of the expenses portion only. We spend roughly 25% of our gross income.

secondcor521

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #4 on: May 16, 2019, 07:54:14 AM »
Usually, the big three items to manage are mortgage/rent, car, and retirement.  (If you have kids, then private schooling can be a fourth.)

Here's how I would approach it:

There's a MMM article on the shockingly simple math to early retirement.  Decide how long you think you want to work, then look at the table in that article and start saving that much towards retirement.

If you want to be conservative, mortgage/rent should be no more than 1/3 of gross, and preferably closer to 25% of gross to be very conservative.

Pay cash for cars to be very conservative.  If you do that, you'll naturally pick a cheap enough car.  But if you want to be a little more aggressive, something that costs 25% of annual salary, financed for no more than 3 or 4 years.

If you manage those three "big rocks", you should be able to afford everything else.  If you find you can't afford everything else, then you're either living at too high of a lifestyle overall or one of your three big rocks is out of whack.

nereo

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #5 on: May 16, 2019, 08:11:51 AM »
As a Mustachian you should decouple your income from your spending
+1.  I'd go a bit further and suggest that you *not* try to force any category into your preconceived percentage of spending. 

my advice:
Find ways to reduce each category of your budget as much as is practical for you.  Whatever you land on is the percentage you spend. Re-evaluate each category periodically.

rational:
I've lived in HCOL areas where 60% of my spending was on housing -- because that was the cheapest housing that met our needs/wants that we could find. Now that we've moved to a LCOL area the percentage we spend on eating out has skyrocketed, but only because we are spending so much less on housing, not because we've changed how much we spend at restaurants.  OTOH my transportation budget went from nearly 0% to nearly 10%, as we now have a daily commute and need to drive places. Setting artificial targets (e.g. 'Housing should be ~1/3 of your total budget') might not make any sense for your area, salary and situation.

wageslave23

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #6 on: May 16, 2019, 08:14:02 AM »
It really depends on your income and where your priorities lie, especially in the FI world. Here is our projected breakdown for the next 12 months:

Savings: 43%
Housing: 20%
Utilities: 2%
Food: 6%
Healthcare: 5%
Transportation: 4%
Baby: 3%
Giving: 1%
Dogs: 1%
Media: 2%
Lifestyle: 5%
Taxes: 8%

Nice job keeping your taxes to 8%! 

Spitfire

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #7 on: May 16, 2019, 08:50:32 AM »
As a Mustachian you should decouple your income from your spending

+2

Ideally you would find a way to reduce spending as much as possible while still enjoying life, and basically stay at that spending level. That way, any time income goes up it just increases your savings % and lowers the spending % since you are spending the same amount.

zoochadookdook

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #8 on: May 16, 2019, 08:58:48 AM »
So my total spending for everything is fairly frugal.

900/Mrtg Escrow for property tax/insurance
190 internet, gas, water, electric
150 groceries
100 gas (more like 75 realistically but the other 25 goes towards maint.)
auto insurance 65/month
So: 1500.

I spend maybe 100 on misc (house stuff/tools for diy/propane for the grill, something always comes up). This catagory is variable but it's part of home ownership/lifestyle and I can see if I can cut this.
I'm currently shopping for insurance healthwise and will budget max 200/mnth for that

puts me at 1800/spent.

Income is 2800/month after taxes entry level job for 2 months. They could hire me direct in 3 months which would include a 401k match/plan, healthcare, higher pay, etc. I pull in (hopefully) 500+ on side jobs/self-employment per month.

This gives me 1000 w2/1500 total to allocate monthly.
Current assets:
House 116k owed/190 market
62K liquid HYSA
27k roth ira vanguard

Liabilities:
House 4.25% 30 year 116k.
Student loans 4.1% 11k (interest/payment deferred until july)

I have maxed my Roth ira. Not offered a 401k currently so looking at opening a sep and maxing that with the spare money a month. The rest I guess just goes towards taxable investments *VTSAX?* and possible "wants" savings (The house will need a driveway in the next few years and I'd like to tear off the front deck/get a poured porch and side garage pad/redo the bathrooms and kitchen.). The bathrooms should be mostly just my labor and supplies-the kitchen and drive will be pricier. I'm trying to figure out if I should just throw like 5% take home towards that or.....

nereo

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #9 on: May 16, 2019, 09:19:44 AM »
^^ This sounds like a question the Investment Order was drafted to answer...(link embedded).

SwordGuy

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #10 on: May 16, 2019, 09:22:43 AM »
Sen. Elizabeth Warren published the 50-30-20 budget plan.  It's excellent advice.

50% needs.   
30% wants.
20% savings.

https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922


Mustachians would take this and just change the percentages to up the savings.  Put your savings on auto.   Don't force yourself into a position where your needs go over the % you've set for yourself.   Simple, clean, efficient.

DeniseNJ

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #11 on: May 16, 2019, 09:31:56 AM »
It's also easy to start wanting stuff and "needing" stuff just bc you've budgeted for it.  But you really have to look at each pruchase and decide if it will bring you lasting happiness, happiness that you would work another month or 6 months or a year for.  Even if you can afford it per your budget and even if you want it and would have fun with it, you will regret spending money when the shininess wears off and your happiness level has not increased a bit.  Try to think about and change the things that make you happy and do the cheap things until you are FI, then you go down your list to the expensive things.

wageslave23

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #12 on: May 16, 2019, 09:35:48 AM »
Sen. Elizabeth Warren published the 50-30-20 budget plan.  It's excellent advice.

50% needs.   
30% wants.
20% savings.

https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922


Mustachians would take this and just change the percentages to up the savings.  Put your savings on auto.   Don't force yourself into a position where your needs go over the % you've set for yourself.   Simple, clean, efficient.

30% on wants seems very high at any income level, even for non-mustachians.  At $2000/mo income that's $600/mo on fun/entertainment?  Or $8000/mo income that's $2400/mo on fun/entertainment.  No wonder she's a bankruptcy expert.

Zikoris

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #13 on: May 16, 2019, 09:42:17 AM »
Our breakdown if usually about:

65% savings
15% Needs
20% Wants (mostly international travel)

Which is right where you need to be in you want to retire in your 30s. You would have a bit more leeway if you wanted to retire in your 40s or 50s.

nereo

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #14 on: May 16, 2019, 09:47:18 AM »
Sen. Elizabeth Warren published the 50-30-20 budget plan.  It's excellent advice.

50% needs.   
30% wants.
20% savings.

https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922


Mustachians would take this and just change the percentages to up the savings.  Put your savings on auto.   Don't force yourself into a position where your needs go over the % you've set for yourself.   Simple, clean, efficient.

30% on wants seems very high at any income level, even for non-mustachians.  At $2000/mo income that's $600/mo on fun/entertainment?  Or $8000/mo income that's $2400/mo on fun/entertainment.  No wonder she's a bankruptcy expert.

Yeah.... I don't really buy this.  My needs and wants don't scale with my income, and needs and wants shouldn't scale with each other. This seems more like a mathematical example of the hedonistic treadmill at work.   

wageslave23

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #15 on: May 16, 2019, 09:54:06 AM »
Our breakdown if usually about:

65% savings
15% Needs
20% Wants (mostly international travel)

Which is right where you need to be in you want to retire in your 30s. You would have a bit more leeway if you wanted to retire in your 40s or 50s.

Zikoris, would you mind sharing your budget dollar amounts?  15% is amazing, I don't even know how to wrap my head around it.  Especially since from your other posts I gather you guys don't make a ton.
« Last Edit: May 16, 2019, 09:55:38 AM by wageslave23 »

zoochadookdook

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #16 on: May 16, 2019, 09:56:54 AM »
Our breakdown if usually about:

65% savings
15% Needs
20% Wants (mostly international travel)

Which is right where you need to be in you want to retire in your 30s. You would have a bit more leeway if you wanted to retire in your 40s or 50s.

That'd be feasible if I had someone to cover housing for me/had a sweet ass job but that's not the case. How do you manage that?

zoochadookdook

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #17 on: May 16, 2019, 09:58:25 AM »
^^ This sounds like a question the Investment Order was drafted to answer...(link embedded).


Been there. They were like-yeah it depends but to max TAA I have to hopefully fund a sep 401k/otherwise-just throw it all in taxable accounts.

zoochadookdook

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #18 on: May 16, 2019, 10:03:36 AM »
It's also easy to start wanting stuff and "needing" stuff just bc you've budgeted for it.  But you really have to look at each pruchase and decide if it will bring you lasting happiness, happiness that you would work another month or 6 months or a year for.  Even if you can afford it per your budget and even if you want it and would have fun with it, you will regret spending money when the shininess wears off and your happiness level has not increased a bit.  Try to think about and change the things that make you happy and do the cheap things until you are FI, then you go down your list to the expensive things.

Lol trust me-I'm not into the new and shiny. I drive a $1000 honda civic and will continue to do so until it doesn't make sense to (the last $1000 camshaft/timing belt/water pump/mount hurt a lot). I enjoy things but they always get overnight consideration/alternative means of funding. Example: when I graduated college I wanted a xbox one x: waited for months on craigslist and snagged one for $250 with some extras+ warranty vs 450 new. Shopped around on slickdeals to get my xbl membership for $40 vs 120 annual. This was a definite want but it was mitigated and worked around to accomadate being a lesser expense. The issue I see with a driveway/slab/patio is there is limited ways to mitigate costs. Possibly breaking up/removing the old one myself or seeing if the neighbor accross the street wants to go in (new construction no pavement yet)/negotiating with the contractor for 5% off if paid with cash or churning the expense for a credit card bonus......

DadJokes

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #19 on: May 16, 2019, 10:37:20 AM »
Here's Dave Ramsey's suggested breakdown:

Giving: 10%
Saving: 10%
Food: 10-15%
Utilities: 5-10%
Housing: 25%
Transportation: 10%
Health: 5-10%
Insurance: 10-25%
Recreation: 5-10%
Personal Spending: 5-10%
Misc: 5-10%

To simplify, that's
Needs: 65-95%
Wants: 25-40%
Savings: 10%

I'm not sure why there are upper ranges on his percentage categories, since adding up the lower limits of each category adds to 100%. Even then, his percentages are pretty wonky for someone who talks a lot about living below your means.

Zikoris

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #20 on: May 16, 2019, 10:40:50 AM »
Our breakdown if usually about:

65% savings
15% Needs
20% Wants (mostly international travel)

Which is right where you need to be in you want to retire in your 30s. You would have a bit more leeway if you wanted to retire in your 40s or 50s.

Zikoris, would you mind sharing your budget dollar amounts?  15% is amazing, I don't even know how to wrap my head around it.  Especially since from your other posts I gather you guys don't make a ton.

Sure. Last year we made about 78K and spent 28K, and saved the rest. Of the spending, some of the larger categories:

$9,815 - Travel (Mexico, a solid chunk of Europe, Vietnam, and a bunch of shorter trips to more nearby places)
$9,987 - Housing
$3,351 - Food
$1,026 - Phones and internet

I also had about $1,000 of dental work done.

Every other category is just pretty small amounts after that, so I'm not going to break it down any more unless there's a specific category you want.

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #21 on: May 16, 2019, 10:47:13 AM »
Sen. Elizabeth Warren published the 50-30-20 budget plan.  It's excellent advice.

50% needs.   
30% wants.
20% savings.

https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922


Mustachians would take this and just change the percentages to up the savings.  Put your savings on auto.   Don't force yourself into a position where your needs go over the % you've set for yourself.   Simple, clean, efficient.

30% on wants seems very high at any income level, even for non-mustachians.  At $2000/mo income that's $600/mo on fun/entertainment?  Or $8000/mo income that's $2400/mo on fun/entertainment.  No wonder she's a bankruptcy expert.

Yeah.... I don't really buy this.  My needs and wants don't scale with my income, and needs and wants shouldn't scale with each other. This seems more like a mathematical example of the hedonistic treadmill at work.

Yes, this seems very similar to retirement recommendations that say you'll need a certain percentage of your income to retire. No, you'll need what you need and spend what you spend. If you're frugal, it'll probably relate a lot more to what you spent before retirement with obvious differences (less on gas if you drive to work, more on travel if you're able and want to travel more).

wageslave23

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #22 on: May 16, 2019, 10:48:36 AM »
Our breakdown if usually about:

65% savings
15% Needs
20% Wants (mostly international travel)

Which is right where you need to be in you want to retire in your 30s. You would have a bit more leeway if you wanted to retire in your 40s or 50s.

Zikoris, would you mind sharing your budget dollar amounts?  15% is amazing, I don't even know how to wrap my head around it.  Especially since from your other posts I gather you guys don't make a ton.

Sure. Last year we made about 78K and spent 28K, and saved the rest. Of the spending, some of the larger categories:

$9,815 - Travel (Mexico, a solid chunk of Europe, Vietnam, and a bunch of shorter trips to more nearby places)
$9,987 - Housing
$3,351 - Food
$1,026 - Phones and internet

I also had about $1,000 of dental work done.

Every other category is just pretty small amounts after that, so I'm not going to break it down any more unless there's a specific category you want.

Wow thats really good!  Your housing is super reasonable.  Nice job.

nereo

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #23 on: May 16, 2019, 11:22:50 AM »
Here's Dave Ramsey's suggested breakdown:

Giving: 10%
Saving: 10%
Food: 10-15%
Utilities: 5-10%
Housing: 25%
Transportation: 10%
Health: 5-10%
Insurance: 10-25%
Recreation: 5-10%
Personal Spending: 5-10%
Misc: 5-10%

To simplify, that's
Needs: 65-95%
Wants: 25-40%
Savings: 10%

I'm not sure why there are upper ranges on his percentage categories, since adding up the lower limits of each category adds to 100%. Even then, his percentages are pretty wonky for someone who talks a lot about living below your means.

Yet another reason not to follow DR's 'advice'.

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #24 on: May 17, 2019, 04:48:11 PM »
Sen. Elizabeth Warren published the 50-30-20 budget plan.  It's excellent advice.

50% needs.   
30% wants.
20% savings.

https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922


Mustachians would take this and just change the percentages to up the savings.  Put your savings on auto.   Don't force yourself into a position where your needs go over the % you've set for yourself.   Simple, clean, efficient.

30% on wants seems very high at any income level, even for non-mustachians.  At $2000/mo income that's $600/mo on fun/entertainment?  Or $8000/mo income that's $2400/mo on fun/entertainment.  No wonder she's a bankruptcy expert.

Yeah.... I don't really buy this.  My needs and wants don't scale with my income, and needs and wants shouldn't scale with each other. This seems more like a mathematical example of the hedonistic treadmill at work.

Yes, this seems very similar to retirement recommendations that say you'll need a certain percentage of your income to retire. No, you'll need what you need and spend what you spend. If you're frugal, it'll probably relate a lot more to what you spent before retirement with obvious differences (less on gas if you drive to work, more on travel if you're able and want to travel more).

I don't think you guys get this.

It's not early retirement advice.   It's advice for people who want to live a mainstream lifestyle they can actually afford AND set aside a lot to handle life's emergencies and retire on at the normal retirement age.  And for that, it's excellent.   A 20% savings rate gives you FI after 37 years per MMM,, so an age 60 retirement.

For someone who wants to live a lifestyle like most everyone else but still have a solid measure of financial security, it's very good advice.


For people like us, who want to be financially free very quickly, it's not for us.     

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #25 on: May 17, 2019, 05:00:11 PM »
I think having a target % is the wrong approach.  That gives you an excuse to spend up to the target. "Target is x%, or $yyy for groceries, and I'm $20 below target, so no need to evaluate that or look for fat to trim."

Instead of working from percentages down, work from requirements and non-negotiables up.  Aim to get your grocery spending as low as possible.  If it's at $750, aim for $600.  When you get to $600, see if you can push to $500.  If you stall out, then set your budget there--$550.  If you can still manage fairly well, push more.  Once you hit the point where you simply aren't willing to do what it takes to make more cuts, you've got your number.

Giving yourself permission to spend 30%, or 15%, or whatever, on frivolities locks in waste that you might otherwise fairly easily cut. 

Better still, if you have the discipline, go to zero based budgeting where you evaluate each purchase or expense on its own merit, with no targets at all.  It's not for everyone, but for those for whom it works, it is likely to have the best results because there is never permission to spend just because you happened to save on something else.   

Bloop Bloop

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #26 on: May 17, 2019, 05:18:16 PM »
Taxes (income, sales, rates, land tax): 40%

Savings: 30%

Passive income: +14% [I consider this a separate category]

Food, eating out: 8%

Interest on mortgage: 9% [after tax deduction: 5%]

Transport: 7% [after tax deductions: 5%]

Holidays: 4%

Utilities/services: 3%

Lifestyle, clothes, social: 3%

Healthcare: 1%

Accounting/legal/other: 1%

You guys are lucky that in the U.S. taxes are so low. Imagine trying to FIRE when your tax burden is 2/5 your gross pay.

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #27 on: May 17, 2019, 05:35:21 PM »
Taxes (income, sales, rates, land tax): 40%


Most Americans just pay attention to their income tax. While we also have sales tax, vehicle tax/registration, and Property tax, I rarely ever see anyone consider those things into their overall ďtaxes.Ē

Usually sales tax falls in under their spending category, and property tax falls in under their housing/mortgage, etc.

Not only do we have federal income tax, but many states also have state income tax on top of it. California has up to a 12.3% additional state income tax.

Texas has a 2.2% property tax rate in most of the state. I.e. a $300,000 home will be about $6600/yr in tax.

Also, while our federal income tax is lower, we also donít have socialized healthcare. Itís not abnormal for a family to pay $1000/mo or more for health insurance..

The United States certainly has cheaper taxes than many other places, but thereís also a lot of other caveats to just our federal income tax rate..

Bloop Bloop

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #28 on: May 17, 2019, 05:43:36 PM »
Thanks for the explanation. I understand the US has a lot of disparate expenses, which add up. Even so, the tax burdens I see listed in this thread and vanishingly low. For example, if I was the average Australian earning an average wage income, my tax burden from income tax alone would still be in the 20-22% range, and that doesn't include our Medicare levy (2% of your income), private health insurance costs (about 1.5%) and all the other rates/land tax we pay.

FIREstache

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #29 on: May 17, 2019, 05:59:53 PM »

You guys are lucky that in the U.S. taxes are so low. Imagine trying to FIRE when your tax burden is 2/5 your gross pay.

Maybe for married folks with kids.  As a single guy in the U.S. in one of the highest tax burdened states, for every additional $1 of income I earn, 42% of it goes to federal income, state income, and FICA taxes, and that's not counting high property taxes, sales tax, liquor tax, gas tax, communications taxes, car/registration, taxes on investment income, etc.

I still manage to maintain about an 80% savings rate in recent years using MMM's formula on take home pay.

BicycleB

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #30 on: May 17, 2019, 06:27:02 PM »
@zoochadookdook, I support the people who say what makes sense is what it takes to pay for an excellent life. If this yields a healthy savings rate, great. If not, then you have to manage your wants and income so that your needs are paid and you are making financial progress that is satisfactory to you.

Part of it depends on your "wantiness." I had undefined wants amounts when I arrived in the forums. I awarded myself $3,000/year of play money contingent on meeting a financial self-discipline goal. Met the goal. I liked the fixed amount of fun money because then I could have infinite fun as long as it fit in the budget. I never needed to spend the $3000. Finding that out freed me from wants vs budget conflict.

Thanks for the explanation. I understand the US has a lot of disparate expenses, which add up. Even so, the tax burdens I see listed in this thread and vanishingly low. For example, if I was the average Australian earning an average wage income, my tax burden from income tax alone would still be in the 20-22% range, and that doesn't include our Medicare levy (2% of your income), private health insurance costs (about 1.5%) and all the other rates/land tax we pay.

@Bloop Bloop, I've run scenarios to consider total tax in the US for a number of cases. I also include all medical expenses, because many medical costs in the expensive US medical system are not paid for through taxes. They are paid for privately, so an apples to apples comparison would be "taxes plus medical" vs "taxes plus medical." Doing it that way, most Americans pay between 35% and 50%,  with 40% and 45% quite common. Our measured govt spending is 37.9% before accounting for medical. That's similar to most OECD countries and not too far from Australia according to OECD statistics.

Check out the table below. You'll see Australia and the United States right next to each other. Look closely - USA's govt spending is higher than Australia's, even before accounting for all those private US medical costs!

https://data.oecd.org/gga/general-government-spending.htm

If it's any consolation, we're both in the cheapest quarter of the chart. Statistically it could be argued that Australia is a low tax haven among countries with advanced economies. It would be worse in France, I guess...
« Last Edit: May 17, 2019, 06:53:49 PM by BicycleB »

Bloop Bloop

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #31 on: May 17, 2019, 06:34:40 PM »
My understanding was that most Americans have health insurance through work. Is there a source for the stat that the average American pays 35-50% of gross income in taxes + medical expenses?

Villanelle

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #32 on: May 17, 2019, 07:01:34 PM »
My understanding was that most Americans have health insurance through work. Is there a source for the stat that the average American pays 35-50% of gross income in taxes + medical expenses?

Many don't have insurance through work, and for most that do, there are still expenses, both monthly for the insurance and then when services are actually used. 

BicycleB

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #33 on: May 17, 2019, 10:27:43 PM »
My understanding was that most Americans have health insurance through work. Is there a source for the stat that the average American pays 35-50% of gross income in taxes + medical expenses?

The OECD chart I linked to above shows that American government spending is about 37.9% (Australia's 36.1%).

Strictly speaking, America's federal and state governments run deficits most of the time, so tax paid should be less than that, perhaps 34%...
(Some deficit data:
2018 federal deficit $779 billion
https://www.nytimes.com/2018/10/15/us/politics/federal-deficit-2018-trump-tax-cuts.html
2018 GDP 20.5 trillion
https://www.bea.gov/news/2019/initial-gross-domestic-product-4th-quarter-and-annual-2018)

But health care expenses are huge. I usually see around 17% of GDP quoted. Some is paid by govt, some by private means including but not limited to employer payments; note that employer payments are outside of taxes, so they are a private payment.
(some sources:
17.9% of GDP, per US govt statistics 2017
https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html
"while the US has similar public spending, its private sector spending is triple that of comparable countries"
"private spending in the US is much higher than any comparable country; 8.8% of GDP, compared to 2.7% on average for other nations")
https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#item-average-wealthy-countries-spend-half-much-per-person-health-u-s-spends)

Based on the sources above, US taxes paid plus health care expense should be around 42% to 43%.

Using the 36.1 for Australia from the earlier OECD link upthread, plus 2.7% for average private expense, Australia's comparable tax+private spending combo would be about 38.8% less any government deficit. I don't know if Australia's private health expense is average though.

Hmm, Wikipedia gives a figure of 1.6% for recent Aussie one-year deficit. So maybe 37.2% Australian tax+health cost is comparable to US 42%.
https://en.wikipedia.org/wiki/Australian_government_debt
« Last Edit: May 17, 2019, 10:43:24 PM by BicycleB »

Caroline PF

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #34 on: May 18, 2019, 12:03:10 AM »
Also, while our federal income tax is lower, we also donít have socialized healthcare. Itís not abnormal for a family to pay $1000/mo or more for health insurance..
True!

My understanding was that most Americans have health insurance through work. Is there a source for the stat that the average American pays 35-50% of gross income in taxes + medical expenses?

Health insurance that is paid through work is, in essence, deducted from your salary. If a company has $100,000 to pay out in salary, and needs to pay $10,000 in health care costs, then they will only pay the worker $90,000. Money isn't magic - it needs to come from somewhere. So whether the individual pays, the company pays, or the government pays, it all comes out of our pocket in the end.


I'll give my family's healthcare costs as an example of the cost of US healthcare. This year I maxed out our insurance.

Yearly costs:
Company: $17,893.20
My portion of the health insurance: $5,362.76
My out of pocket costs: $8,000

Total: $31,255.96

Plus, we pay medicare taxes: 2.9% of income, half from me, half from the employer.


I don't know the percentage stats, but just based on the totals, I can totally see how that 35-50% stat could be correct. Pulling numbers out of the air, if you make $100,000 (higher than average), and pay 15% in federal and state taxes, and also pay $25,000 in healthcare costs, that's 40% right there.

Bloop Bloop

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #35 on: May 18, 2019, 12:14:55 AM »
Remember though that overall tax burden can't be compared to individual taxes paid. Company tax, payroll tax, etc contributes to a significant amount of government revenue that individuals never pay out of their budget.


aGracefulStomp

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #36 on: May 18, 2019, 01:06:36 AM »
Percentages are a great guide for people who have no idea how to constructively use their money. It's a very easy-to-understand way to stop people from plunging into financial demise (eg from having 100% spending on wants, 0% savings, credit card for needs).

However, if you are looking at websites like this one, then you are probably capable of figuring out your own percentages.

The only time I've looked at percentages is as an after-fact, and the only one I look at is my savings rate. I'm happy with how I spend the rest of my money so I think whatever the percentages are, they are right ... for me.

BicycleB

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #37 on: May 18, 2019, 08:02:37 AM »
Remember though that overall tax burden can't be compared to individual taxes paid. Company tax, payroll tax, etc contributes to a significant amount of government revenue that individuals never pay out of their budget.

It can be compared if you choose to look at the whole picture. Whether you do so is up to you.

Maybe it would feel better if most of the tax was deducted in ways that you never see, so that your tax burden falsely appears to be around 15% instead of 40%. But your after tax spendable income would be exactly the same, you'd just be misinformed if you didn't realize the whole 40% of taxes were reducing your income. Many people both inside and outside of America suffer from that very same misunderstanding. In effect, USA's slick marketing has deceived its own people. These multiple partially hidden taxes support the false belief that we are a nation of extraordinarily low taxes whose prosperity comes from charging its people less money for vital services. Evidently others believe it too.

This misunderstanding is one of my pet peeves because I think it leads to bad policy in the US and unneeded angst elsewhere. I guess these posts are my attempt to spread knowledge and gradually improve the world. You don't have to be jealous of our low taxes once you realize ours are actually higher, I was thinking.

Obviously the tax complications are why MMM himself suggests calculating personal budgets in after-tax terms. Which reminds me - OP, sorry for the thread hijack. Good luck finding budget percentages that are helpful in your planning.
« Last Edit: May 18, 2019, 08:51:42 AM by BicycleB »

Gin1984

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #38 on: May 18, 2019, 08:57:27 AM »
Thanks for the explanation. I understand the US has a lot of disparate expenses, which add up. Even so, the tax burdens I see listed in this thread and vanishingly low. For example, if I was the average Australian earning an average wage income, my tax burden from income tax alone would still be in the 20-22% range, and that doesn't include our Medicare levy (2% of your income), private health insurance costs (about 1.5%) and all the other rates/land tax we pay.
Health insurance for us can vary, but that does not count Medicare and social security at 7.65. There is split between the two but I can never remember it.  For example my husband's health insurance was $4200/$50,000 so 8.4% of his salary but it was a high deductible plan that paid nothing before $6000 so we used an HSA to pay for that. Compare that to my employer which costs $3,600/$64,200 which is 5.6%, it too is high deductible plan but starts covering a portion at $3000.

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #39 on: May 18, 2019, 02:57:34 PM »
For those in the US who are curious, you can find out how much your employer spends on your health care by looking at your W2, box 12.  Personally, my employer's contribution was $14,110 last year.

FIRE 20/20

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Re: What makes sense budget percentage wise? Living/savings/wants?
« Reply #40 on: May 18, 2019, 04:56:32 PM »
I think having a target % is the wrong approach.  That gives you an excuse to spend up to the target. "Target is x%, or $yyy for groceries, and I'm $20 below target, so no need to evaluate that or look for fat to trim."

Instead of working from percentages down, work from requirements and non-negotiables up.  Aim to get your grocery spending as low as possible.  If it's at $750, aim for $600.  When you get to $600, see if you can push to $500.  If you stall out, then set your budget there--$550.  If you can still manage fairly well, push more.  Once you hit the point where you simply aren't willing to do what it takes to make more cuts, you've got your number.

Giving yourself permission to spend 30%, or 15%, or whatever, on frivolities locks in waste that you might otherwise fairly easily cut. 

Better still, if you have the discipline, go to zero based budgeting where you evaluate each purchase or expense on its own merit, with no targets at all.  It's not for everyone, but for those for whom it works, it is likely to have the best results because there is never permission to spend just because you happened to save on something else.

I agree with this.  We found housing met our needs and initially was 25% of our budget.  Years later, while the costs largely stayed the same, it dropped to about 12% as our income doubled.  We refinanced to a lower interest rate and a 15 year term, so it went back up a bit.  After the mortgage was paid off, it dropped to probably under 5%.  Our needs and wants didn't change, but the percentage was all over the place.