Exactly how many dollars you spend each month depends, of course, on your income. But there is one universal rule: You should always spend less than you earn. That’s the only way you can be sure there’s room in your budget for saving, which is how you’ll reach your financial goals.
Ideally, you want to put at least 20 percent of your take-home pay into your savings account (for emergencies and other short-term expenses) and investment accounts (for future goals), leaving you 80 percent to spend each month.
The bulk of that should be reserved for basic living expenses, like food and shelter, as well as utilities, gas and other necessities. (A general rule of thumb is to keep housing costs to 30 percent or less of your take-home pay.) You can spend what’s left on meals out, travel, entertainment and other flexible expenses.
One popular way to break it down is using the 50-20-30 rule. That means 50 percent of your take-home pay goes toward fixed necessities, 20 percent goes to savings and future goals leaving 30 percent for other expenses. In cash terms: If you bring home $4,000 a month, $2,000 should be allocated to fixed costs, $800 to savings and investing—and $1,200 to everything else.
Of course, this is just a guideline. Your own budget should be tailor-made to fit your unique life. If you live in an expensive city (hey there, NYC and SF), keeping your housing and other living costs to just 50 percent of your income may feel nearly impossible. In that case, you may need to scale back on the extras. Or maybe you’ve figured out how to keep rent way down, so you can afford to allocate even more to saving—and sometimes extra fun.
Related: Make the Most of Your Paycheck