Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination, no budget category percentages, how much of net income should be used by each category monthly, knowing these percentages, were helping getting debt reduce and savings increase. By that, I mean, if you can stay within these guidelines, and they're only guidelines, you will have a much happier and better chance of income, increase your savings and your investments and staying out of debt problems. Now, with that said, I have three links in my show notes. For articles that give you percentages, I'm gonna refer to the very last one, which is credit counseling society, because they give you your percentages. And they also kind of give you a list of what should be in these categories. And I think that's most helpful. The other articles that I have read about using percentages and for your budget. Or I get the feeling that they think everybody's living with their parents, but has an income, but they yet to either go out and rent an apartment or buy a home, they don't have any, they haven't bought a car to hand done anything yet other than make money. And they should divide up their spending on these based on these percentages, at the very beginning, beginning of their life, of living on their own best way to describe that. And we all know that's not exactly how things happen. We know that okay, you graduated from college, you may have got a job, you may be started living with a friend or roommate, and you bought a car and you have credit cards and your debt got out of control because you need to buy things and and you had no clue what was going on. And you thought, Okay, I'll pay for that my next paycheck and you get behind, you know, life happens. So these percentages are only a guideline. Now when I say like housing should be x percent. And your utility should be x percent. That can vary by where you live. And how much income you make. The more money you make, the easier is going to be for you. Because and if you live in an area with high housing costs, and low transportation costs, you may spend more on housing and lot less on transportation. So the best thing to do, what I recommend is one, you're tracking your spending, you have a application where you're doing that, because that's the lifeblood of your personal finances, knowing what's coming in. And what's going out is step one. Now you created a budget because you did your tracking software, and you created a report by category and use able to maybe set up a budget. Now in that budget is broke down however you broke it down. I like to think of needs first which is housing, transportation, living expenses that keep it basic. And living expenses would be food and clothing. To keep it the very basics. Entertainment is not a need. It's a once you can vary your entertainment based on your income or the money available you have at the time to do it, such as going out to a movie theater. If you don't have the money, you don't do it. If you have the money, you might do it once a week or he may do it once a month. It all depends. So once you've gotten that part figured out, and you have your categories, and you set yourself up a spreadsheet and you've got a budget and what it is so Let's group them by housing, transportation, living expenses. And let's go with within those categories should include like housing if you own buying a home should include your mortgage payment, property tax, any fees, rent, homeowners association, insurance, and or electricity. Why are they saying like TriCity and housing, and then they have another category for utilities. To me, electricity isn't a utility. So whatever. I also include all the utilities and my housing, and utilities or would be your cell phone, gas internet bills. And I nowadays include streaming services, and another cable services. I like to categories everything in the housing that pertains to house, like if you have a landline phone that gets connected to that home, that landline phone should be under housing, and be the keep everything neat and tidy, include your cell phones under housing. Also, if you want to break that out different, fine, but to keep it all together, so the percent for housing without utilities is 35%, which includes your mortgage, property, tax everything. So your mortgage payment shouldn't be more than 25%. Now, I know that's pretty low number nowadays. So what are you gonna do? Well, the first thing to do is figure out your budget. The second thing to do is apply these percentages to see how things fall for your budget. So we're just these are guidelines, remember guidelines. So housing is 35%. Utilities 5%. Now, I've seen other articles to said housing is 25. And utilities is 10. So as to 35. So somewhere between 30 and 40% of your net income is housing. What is net income. Net income is the amount of money that is deposited into the bank. If you have a direct deposit, meaning your paycheck is automatically deposited in your checking account, as the number that goes in there every pay day, that your net income, if you are getting a check one of those old timers is the amount of money your deposit in your checking account. Actually, your net income should be your gross income, the total amount you make less federal state taxes, less health insurance is deducted and or any 401 K retirement plan that's deducted as the money you have leftover after everything comes out of your paycheck automatically. That's net income. So housing should be somewhere around 40%. And that's including utilities. Transportation is the money you spent on public transit, taxi fuel, vehicle insurance, maintenance and parking are included in this category. This might change depending on whether or not you're working from home. But some should be still on allocated to understand your budget as a whole. Also should include and a car payments, car loans, automobile loans are also included and transportation 15 to 20% of your net income. So far these two are needs. Now we have five categories as living expenses, which is clothing, which is grocery personal care products and things for baby needs or expenses include air. If you like to eat out a lot, you might include those expenses here. But eating out is more something you do for fun. And you can include that under personal spending. So they're saying if you eat out a lot, and hence your main source of food should be under food. If you eat out occasionally, and it's more for entertainment, it's okay to categorize that under entertainment. Clothing out in the food should be 10 to 20% No more clothing, shoes and clothes for all family members three to 5% so for your living expenses shouldn't be more than a total of 25% So we got already 6585. So we're up to 85% of your net pay so far. Medical 3% includes your premium specialists and over the county motor medications. Remember, if your health insurance is already out of the net pay, it's not included here. This medical would be prescription drugs that you pay for out of pocket, personal and description, discretionary as money spent on entertainment, recreation, education, tobacco and alcohol eating out gaming haircuts, hobbies, plan charitable giving are some examples. If you spend more in this category, make sure your budget balance balances by spending less elsewhere. And they're saying five to 10%. So we're up about 80 savings plan to save money for expenses that don't occur every month, as well as for your future, then you have extra available when you need it. This can also be categories as an emergency fund or emergency savings, for things that come up in the future. Okay, five to 10%. And debt payment is five to 15%, which would be any loans you have that's not housing or transportation. So that would be student loans, credit card debt, personal loans, payday loans, things like that, no more than 15%. So the idea here, these are guidelines, as if you can keep your spending under these percentages, you're gonna have money in a savings account, and you're not gonna struggle, because you're gonna have an emergency fund. So your debt reduction plan can stay intact. Because you're going to build up your emergency fund, you're not gonna be creating new debt, you're gonna be making a minimum payment and all your other debt until you have and sufficient amount build up in your emergency fund, or a savings account, where then you can apply a larger amount to one at a time and pay it down. That would be covered in my previous separate slow debt reduction plan. What are you going to do if he already went out and you bought a home, he had two car payments. He married have a couple children, your wife worked for on your first bought the home and the second car, that you bought a car for yourself, you bought a car for the wife. And then when you had the two children, your wife quit working, or maybe you quit work and the one that had the lesser income should have been the one that stays home with the children. Or maybe you're both still working, but you're paying a lot of money in childcare. Sure should maybe be better off having one of you quit working, and stay home, not have an income, but not pay for childcare. All those are decisions you got to make as you go through life. But he can't do it without about being informed. So the more informed you are about your personal finances, you can look to see what has changed. So maybe your spouse quit working, we'll just go with this example. But your both incomes were included when you bought the home. So you're so you are under say 20% your mortgage payment was around 20% of your combined net income. Well, if one of you quit working, what's your home payment gonna be? It's gonna be more than 20% but the question is, will it go over? 43% Because if it goes over 43% It'll be impossible for you to borrow any money for anything else for any reason whatsoever. Because lenders are not gonna lend you the money because your income is too low. So this stick with this we're one spouse you know, quit work and just be a stay home with the children. Because health care day care was so expensive. So maybe your net income on your housing is now 60%. Maybe your travel All your transportation has dropped, because you paid off one of those cars. That was part of the deal that you worked out. But if we pay off one of these automobiles, we have one car payment, we'll be able to swing it. So maybe your transportation is now down to roughly 7%, or five to 7%. So you're making up for the excess in your housing, by decreasing what you're spending on transportation. Also, you can decrease what you spent under your personal and discretionary, you can maybe do away with something, cut back somewhere and spend less money. Now it's hard to quit, to spend less money on groceries, when you're trying to raise a couple children with small children don't eat a lot. So you got to look at what types of food you are eating, eating, and where you can cut back and save some money. And one example would be Buy store brand products instead of name brand products, because they're cheaper, use coupons, things like that. Also, if you who still have cable TV, cut out cable TV, because you're paying for internet, let's use your internet service to its maximum by streaming. Everybody seems to be doing that nowadays, I don't know that's anything new. I've been doing it for five or six years, it definitely cut back on my spending on cable TV, because I was a truck driver, I'm not home. So that really helped me. Also included in these percentages or your budget should be your debt payments, five to 15%. If you're struggling to pay off credit cards, because you have too much debt, you may be paying 30% on debt, which means you got to cut back somewhere else. So maybe you're lucky and you bought a home under one income. And you got a couple of pay raises because you lived there for a few years. So maybe your housing is under 40%, maybe your housing is down around 28%. So that's where you're making up the money to make these debt payments. So it's all relative based on your individual needs. You don't have to spend his money in these categories. Like your debt payments could be zero. If you have zero debt, like my, my debt payment is probably maybe 2%. If that maybe 1%, maybe less than 1%. I use one credit card to buy things online every month, and I pay it off every month, a few $100. So it's where it's under 1%. That's the advantage of being debt free, and clewd savings. And this is savings and additional to your retirement, your 401 K that may be deducted from your paycheck. If you've got money coming out of your paycheck to going into retirement, the savings could be a little bit less. But remember, the money you set aside today may be used to pay for that expense that comes up once a year. Like my house insurance comes up once a year. My property taxes come up twice a year. So if I put money in my savings account, even though I may not have the money in my checking account, a week before these bills become due, I know I have the money set aside, that I can transfer to my checking account to pay these bills. And on I go and there's no particular worries. Knowing these percentages is helpful. It helps you stay online and then track with what you should or should not be doing. Also everybody is different. Again, like I said before, maybe something changed in your life. So it's gonna throw your income off. Maybe your income went down, maybe the income went way up. So now these percentages are way low, which means you could be putting on larger amount into savings. Instead of putting in fiber, Sam, maybe you should put in 25%. Maybe you can spend a little more on your transportation. Maybe you can spend a little more on your discretionary hobbies or whatever. This is the guideline. It's not set in stone as Matt met to be but if you can keep it within these numbers, these guidelines, you're not gonna have any struggles, you're not gonna get into any trouble unless you go on a spending spree and you pay for credit cards, and you are unable to pay those credit cards off at the end of it. Another thing I want to talk about while we're talking about this, I hear commercials for credit cards for cashback, I struggled with what that really means. So if you spend $1,000, and you get 2% back, you'll get what $20 But you still gonna owe $1,000? How is that helping you? So you go I heard no most recent one is cashback on gasoline. And their lady says she got 200 hours $200 Over what period of time was a one month was a one year was it a her lifetime, she's had that cart. And as she's putting all these gasoline purchases on a credit card, she really not getting nothing back because she's paying for it. You know, 100% of what you buy is still due on that credit card. Unless you use the money they're getting back to you to pay down that credit card. Where's the benefit? There isn't any. If you does use the cash back for in for spending, whatever you want to do, you still owe the money that you'd got the cash back from on the credit card. I see this as a problem is why people are getting deep into debt and can't control it. So beware of these cash back credit cards. Don't spend money on a credit card just to get cash back to know what you're doing before you do it. I'll be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, you can send it using my email, reduce debt, increase well@gmail.com. reduce debt increase wealth is all together no spaces. If you'd like to ask a question, quick question in the subject. If you'd like to request my monthly budget, put that spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject matter. How will get back to you as soon as possible. Using percentages of categories are only a guideline, how I would do it is set up your budget. And once you got your budget set up, what percent of your net income is your mortgage payment net would be all your mortgage payments. So if you have one mortgage payment, what percent of your net income is that one mortgage payment. If you have a first mortgage, a second mortgage and a line of credit, what's your net income percent, all three of those together. Same was transportation. Forgot auto loans, what percent of the loan is to your net income, I would do a total of each category and do a percent on the kick, Nate of net income for each category total. And do another one GS for the loan payment just for your mortgage. And then for your debt category, your credit cards and other loans you may have do a total that what percent of your net income is all your debt. If you're struggling to pay down debt, that probably is a high amount. It may be 40% 60%. It may be too high. And maybe there is a reason why that maybe you lost a job in it took a job making less money. Maybe you got divorce, maybe yours had children when your spouse, one of you stay home now to take care of the children's because it's cheaper to do that. Whatever the reason is knowing your percentages based on your net income. What percent is going to my mortgage payment. Oh, it's 20% That's pretty good. I keep that under 25%. Or maybe it's 30%. That's still good. What percent of your net income is your auto loans? It's 8%. Oh, I'm doing good. It's 30%. Maybe I have a too expensive car. And I need to get rid of that. And now be free up some money to help me elsewhere. This all for you to plan out your life, nothing more. So the step first step is to create yourself a budget. And the second step is to use actual numbers of what really is going on. And the third step is to figure out what percentages you're actually TAF. What percent of your take home pay is going for whatever personal expense, how much is your take home pay being used for personal or discretionary spending, which would be entertainment, hobbies, things like that. If that number is high, you're gonna struggle to pay for other things. If that number is low, and all loans were low, and you're putting Navy, your savings percentages as a real high number on that big good, especially if you're older, and you get in close to retirement, you need to save more money set more money aside. So it depends on each individual situation. And it also depends on where you live, what part of the country you live in, or even what you know where you live. Maybe you live overseas, we're housing is expensive, but food is relatively inexpensive. It all depends. Maybe you live somewhere where everything is fairly inexpensive, so you're able to save more. I don't know. It all depends on each individual. So step one is start tracking your spending and your income. Step two is to create a report by category. Step three is to get yourself a budget setup, where you have housing, your needs first, housing, transportation, living expenses, living expenses, being food and clothing, or clothing is a fairly small number. Then after that you have debt. Savings, discretionary. Figure out how much where your money is going and look to see where your money, maybe you think you enough, but this could be an awakening for you. Maybe you think that most of your money is going to housing. And when you look at it, a lot of it is going to entertainment. Maybe you just thought it was going to housing because you got that big house payment every month. Maybe you're spending more money elsewhere on credit cards and don't realize it so then you're getting in trouble with too much debt. So nit knowing what's going on in your personal finances is important. And by doing this you'll be happier and have more control over your finances and you'll be glad you did so