The basic balanced formula for successfully allocating your money is to take your disposable monthly income (DMI) which equals gross income minus taxes and use 50% for Bare Necessities, 30% for Wants and 20% for Savings. Today I’ll discuss Bare Necessities. These are the basics which you really can’t live without. After calculating the amount of 50% of your DMI, evaluate what you are spending your money on. Bare Necessities for most of us includes shelter, food, transportation and other miscellaneous essential costs.
The cost of shelter is your rent or if you have a home, usually mortgage payment(s) and real estate taxes. It also includes required utilities for electric, gas/propane, water/sewer and basic telephone. There is also home/renters insurance to consider. The next item is basic food costs. A single person per month should allocate about $250 for all food and add about $180 per month for each extra person in household. Transportation costs are car payments, gas and maintenance, or other costs that get you to work every day, such as bus, train, parking and tolls. If you have a vehicle that is more than 6 years old and has greater than 100,000 miles on it you should realistically figure about $150 each month for the maintenance and repair costs.
Other miscellaneous Bare Necessities may be Medical Care costs like health insurance or recurring payments for medical expenses and prescriptions. Also you might have required legal obligations such as child support or alimony, student loans and long term contracts (not credit cards) which are necessary expenses for you.
When you add all of these costs together they should not be more than the 50% of your DMI. If they are than you need to make some changes–which we will discuss in a future post.
And remember: to get out of debt, make it part of your daily resolutions to NOT take on any more new debt. If you can’t pay for it in cash, generally DON’T BUY IT!
***Post content is primarily derived from the book All Your Worth by Elizabeth Warren & Amelia Tyagi which is high ly recommended reading.
Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa