A MAJOR AIM of this series of articles is to evaluate whether your spending is consistent with the goals and objectives which you have set for your life.
This encourages you to make those goals and objectives explicit and to take greater responsibility for managing your finances.
As you keep track of how you dispose of your earnings over the next couple of months, you can review the relative proportion of spending on key items in your budget and compare it to what is considered a reasonable range.
Eventually, even as you are researching your spending habits and getting the real picture, you may care to start to adjust your spending to be in more reasonable proportion.
Controlling your spending using percentages as guidelines will help the spender distinguish between needs and wants. The most popular outcome of keeping track of how one’s income is spent is that spenders are shocked at how much is spent on miscellaneous items such as entertainment, gifts, non-essential impulse purchases, partying and travel.
Here then are some ranges for allocation of howone disposes of the income earned, where the median represents the most popular point on the range:
Rent or Mortgage, including insurance and property tax: between 20 and 35 per cent, themedian being 27 per cent.
Food: 15 to 30 per cent, the median 21 per cent.
Transport, including loans, insurance, licences and taxes: six to 20 per cent, the median eight per cent.
Clothing: three to 10 per cent, the median four per cent.
Insurance: four to six per cent, the median six per cent.
Utilities: four to seven per cent, the median six per cent.
Personal Debt: 10 to 20 per cent, the median 14 per cent.
Miscellaneous Items: one to four per cent, median one per cent.
Savings: five to 10 per cent, median seven per cent.
Personal Care, including health care/child care/insurance: four to 12 per cent, median six per cent.
So, the first assessment that can be done is how do you measure up with your spending?Are you within a reasonable range?Is that point on the range satisfactory to you?For all items?
In fact, expenditures on some items may have to be reduced in order to allow for adjustments in others. Alternately, you may explicitly choose to reset expenditure levels on certain items in order to attain specific goals or objectives.
Targeting a point of self-satisfaction with your spending habits represents the ultimate in gaining better and better control of your finances.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters.Her advice is general in nature; readers should seek advice about their specific circumstances.
