The next step is to dedicate 20% of your take-home pay toward savings. The fewer costs you have in this category, the more progress you’ll make paying down debt and securing your future. Similar to how no more than 50 percent of your income should go toward essential expenses, 30 percent is the maximum amount you should spend on personal choices. Only you can decide which of your expenses can be designated as “personal,” and which ones are truly obligatory. Other components of this category include gym memberships, weekend trips, and dining out with your friends. However, you have some wiggle room since you can decide upon the tier of the service you’re paying for.
If you travel extensively or work on-the-go, your cell phone plan is probably more of a necessity than a luxury. These personal lifestyle expenses include items such as: your cell phone plan, cable bill and trips to the coffee shop. It all depends on what you want out of life and what you’re willing to sacrifice. Some financial experts consider this category completely discretionary, but in modern society, many of these so-called luxuries have taken on more of a mandatory status. The second category, and the one that can make the most difference in your budget, is unnecessary expenses that enhance your lifestyle. For instance, some people live in high-rent areas, yet can walk to work, while others enjoy much lower housing costs, but transportation is far more expensive. And remember, it’s more about the total sum than individual costs. The percentage lets you adjust, while still maintaining a sound, balanced budget. In general, these expenses are nearly the same for everyone and include: Your essential expenses are those you would almost certainly have to pay, regardless of where you lived, where you worked, or what your future plans happen to include. This might seem like a high percentage (and, at 50%, it is), but once you consider everything that falls into this category it begins to make a bit more sense.
To begin abiding by this rule, set aside no more than half of your income for the absolute necessities in your life.
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