Spending Plan (Part 4)
Here are some comments about the various categories.
The 40% home category may seem high. But, it is right on target. My average tax rate is about 29%. So, 0.71 * 0.40 = 28.4%, is on target with the standard maximum 28% gross income for housing.
The 15% food category is higher than average. I estimate that is how much I will spend when I am on my own. I am single now and like to eat-out often. I guess I cant quite picture myself staying-in often just yet!
The 6% transportation category is lower than average. I have a 9-year old car. It is running just fine and I do not see the need to replace it anytime soon. I also commute to work by bus. Big savings here.
The 14% savings category seems like an odd figure. But, it is actually 15% of gross income. The difference is due to the difference between marginal tax rate vs. average tax rate.
The 10% recreation category is probably higher the average. Same reason as for the higher than average food category.
The 10% miscellaneous category includes health, personal, clothing, gifts, etc.
And there you have it. The spending plan works for me and my situation, right now that is. When I get a home, get married and maybe have children, then of course, the spending plan is going to be different.
This is a good starting point to analyze if I can do better. For example, can I go-out less often so that I can save more money for the downpayment? How much will I save? And will it even make a difference? This, then, becomes a matter of personal choice.
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I've always had problems with a miscellaneous category. It's usually always a better idea to have more categories than to use a catch all like miscellaneous. Actually split it out into clothes and medical and things like that. And then have an emergency category. Anyways, it's still a good plan, more of a plan than I have. That's just my thoughts.
