If you own a home, it's likely the biggest expense you have. Financial planner Jim Shoemaker says you must take more into account than just your mortgage. Don't forget your, "utility bill, garbage, water, phone, cable," he said.
Shoemaker advises that you shouldn't pay more than 38% of your net spendable income, or your income after taxes, on your house.
For instance, if you make $40,000 per year, deduct approximately 21.9% of your income for taxes, and you'll take home $31,240 in net spendable income. 38% of that averages out to a total of $990 per month for your house. That should include everything, from mortgage payments and insurance to cable and telephone.
The next big expense for most consumers is a car payment. For that, Shoemaker says, your payments should not be more than 15% of your monthly income. In our example, that means a payment of not more than $390 per month.
Shoemaker breaks down the rest of a normal budget like this:
- 7% on miscellaneous items
- 6% on groceries and eating out
- 6% on entertainment
- 5% on clothing
- 5% on savings
- 5% on debt
- 5% on investments
- 4% on health insurance
- 4% on medical/dental expenses not covered by insurance
Shoemaker says building a budget takes discipline and communication, but is very important to your financial health.