You can do three things with the money you make: spend it, save or invest it, or give it away. People who are wise with money tend to do all three and stick to a ratio that makes sense for their situation.
The percentages you commit to each category can vary throughout your life. Your savings rate will generally range from 3-15%, and for those who give regularly, it is generally 10% of their income. This leaves most of your income for spending.
One of the most important factors for a successful retirement is knowing what it takes to maintain your standard of living. Your standard of living reflects how you spend your money. There is no wrong amount – the only thing wrong is not knowing your amount.
An annual income of $125,000 is a good amount. If your household combines to make over $125,000 in a year, you are in the 80th percentile of income earners in the United States. To put it another way, your income is in the top 20% of all US income earners.
Below is an example that proves even an above-average income can be wiped out in a hurry if you are not being diligent with your spending, saving, and giving habits.
- Start with an Adjusted Gross Income (AGI) of $125,000, but we all know you do not receive all of that money – the federal, state, and local government will receive their cut – let’s call it 25% once all is accounted for. This leaves you with a take-home pay of $93,750.
- This means you are bringing home $7,800 per month (rounded).
- The median mortgage payment in 2022 was a little more than $2,000.
- The median car payment for a used car in 2022 was $750.
- The median monthly grocery bill for a family of four in 2022 was around $1,200.
- The median amount for utility bills per month in 2022 was $350.
- The median homeowner’s and car insurance premiums in 2022 were around $300.
- The median amount of money spent on gasoline each month is $300.
- Combined, these basic expenses add up to roughly $5,000 per month.
- What about vacations? What about eating at restaurants? What about cell phone bills? What about streaming services or cable packages? What about new clothes and shoes? Etc.
- Now what about your savings and investments? What about your tithe?
Our grandparents understood the concept of living on less than you make much better than the average American of today, and many people today are continually increasing their standard of living while not increasing their savings rate. If not corrected, this can be a recipe for a lot of pain in the future.
Take stock of your income. How are you spending, saving, and giving your money? If you are not satisfied with what you find, then make the adjustments now before it gets too late, preferably with the help of a professional financial planner. Your future self will thank you.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.
