Learning to build wealth and pay down debt with the income you already have is not something people talk about very often, but it works.
In fact, William Throroau once said
Your biggest wealth building tool might be the income you already have. And once you believe this to be true - big things will happen with your money.
We made some big decision to use the income we had to pay down our debt. It seemed impossible at the time, but we cut our expenses and saw some traction. Eighteen months later we paid off $18,000 in debt! Crazy, right?
How did we do this?
We learned how to be content with what we had and we used spending guidelines. Percentage spending guidelines can help you evaluate your spending and get organized. It is a fabulous tool to help you reduce expenses and reach your goals.
SPENDING GUIDELINES SHOULD BE DESCRIPTIVE, NOT PRESCRIPTIVE
Your spending will vary depending on where you live, the size of your income, and your family. We will talk about all this in a minute, but these guidelines can help anyone become aware of what areas they need to work on.
You'll find I'm not prescriptive on many things when it comes to money. We all come from different backgrounds and have different family situations.
When it comes to spending guidelines, do what works for YOUR family. Some families spend MORE on clothes and less on food. Other families spend more on eating out and less on activities. As long as you are living within your means and within the guidelines, that is fine.
If one area of your budget is above one of these percentages, try lowering it for a month or two. If it is no big deal, GREAT! If it doesn't' work, that's okay. Get creative and keep working at it.
YOU DO YOU.
THE SPENDING GUIDELINES
Below is a breakdown of spending guidelines per budget category. You will notice each category has a percentage range for your monthly income after taxes and giving. For example, you should strive for your housing expenses to be within 25 - 38 % of your income. Your food expenses should be within 10 to 15 % of your income.
PERCENTAGE GUIDELINES FOR SPENDING
If you are new to budgeting and have no idea what you are spending, we would advise you to take one or 2 areas of this chart and work on it for a month or two. Maybe you take 15% of your next paycheck out in cash and only use that cash to buy food.
Did you have enough?
Or did you spend it all in a few days?
If you find one area of your spending is high, we encourage you not to give up! Get creative! Figure out how to reduce spending in another area to make up for higher expenses. With a little hard work and ingenuity, you will be surprised what you can do.
I think the hardest part about managing your money can be getting organized. Try to figure out where you need to reign in your spending and create a system that works for your family.
Try using a cash envelope system for areas you need help on. We highly recommend using cash for food and miscellaneous expenses (think kids lunch money or target runs).
Related: The Best Cash Envelope System
HOW WE USE SPENDING GUIDELINES
When we first started looking at these guidelines, we knew we need to cut our food costs to pay down our debt. For a year, we didn't invest. We only had a $1,000 in a savings account. We didn't have any fun money or child care costs. We took everything we could and paid off our debt.
Housing is generally inexpensive in our area. Compared to people living on the coast or other populated areas, our housing expenses have always been within 25% to 30% of our monthly income.
On the other hand, our food expenses have gone up sharply in the last few years. We have three kids. We are quickly approaching the teen years. I expect our food bill to be more than 15% of our monthly income soon. I'm okay with that.
I am already looking at ways to decrease spending in other areas to accommodate this expense. It is only for a season and I don't want to stress about. We can get creative and do what needs to be done!
It is important to recognize seasons. Especially when you have kids, you won't always be spending hundreds of dollars a month on diapers. Seasons change and so do your expenses. Some expenses go down (like diapers and child care) and some expenses go up (like food!).
We currently don't have any consumer debt but are aggressively working on paying off our mortgage. Any extra money we can find goes to our mortgage balance!
SPENDING GUIDELINES AND INCOME LEVELS
Let's look at how these spending guidelines play out with different income levels. We broke down a $3,000, $5,000, and $10,000 monthly income so you could get a glimpse of what these percentages might look like for a typical family.
Remember, this is an example. Do what works for your family.
NOTE: In all three of these breakdowns, I tried to use the lower end of the percentage guidelines.
$3,000 MONTHLY INCOME
$5,000 MONTHLY INCOME
$10,000 MONTHLY INCOME
Remember, we are all a work in progress in this area. We all mess up from time to time. This is a reality. This is life. Try not to give into failure. Take a deep breath and try something new. Keep working at reducing and controlling your spending.
Your income is your biggest wealth building tool. This is important work.
Go slow, use cash in overspending areas, and be patient. This is not a race. Getting control of your spending takes time!
What is one are YOU could reduce spending in this month?