“Hey Dad, how much money can I spend on Xbox Live and Netflix?”
How much do you want to spend on those subscription services monthly, kids?
If you get rid of your debt, your “financial flexibility” becomes almost limitless (I said “almost”). What I mean by that is by using the money you would have normally used to pay off debt, you can now use to increase your housing expense perhaps. In other words, “Well you’re moving on up, to the East Side”. Or increase your transportation expense to get that Tesla S “Plaid”, which has the quickest acceleration of any vehicle in production, “I’m told”. Or travel to Bora Bora to vacation in one of those over the overwater bungalows. (“I’m not hating on that one…just saying”). Or do the smart thing and save and invest that money for the future you.
The exciting thing about getting rid of your debt is the door opens wide to a world of possibilities that are important to “YOU”. It also reduces stress and anxiety, which will allow you to enjoy whatever it is you decide to do with that extra cash.
Probably the first thing that you need to do is understand how your take home pay is distributed. I break my take home pay down into 7 categories:
Housing - 30%
Transportation - 15%
Debt - 0%
Personal - 25%
Pet - 0%
Discretionary - 15%
Savings - 15%
Clearly your percentages by category will be different than mine. The cool thing about taking this approach is you can adjust the percentages by category, to get the right mix for you, as long as the total equals 100%. “No, I don’t want a pet or debt”. So if you increase your discretionary expense by 5% to cover the cost of Xbox Live and/or Netflix, you will have to reduce some other category(s) by 5%. No matter how you adjust the numbers, the total must equal 100%. What category would you be willing to reduce to increase your discretionary expense?
The Budget Allocation Chart below demonstrates how your take home pay can be distributed by percentages, yielding the approximate dollar expense for each category. You can adjust the percentages to fit your current situation, or adjust to your desired situation to see what the dollars look like. You may need to complete the “Cost of Living Worksheet” first. The worksheet will help you identify your current expense percentages. The Cost of Living Worksheet can be found in the “Hey Dad, where do I start with my financial journey?” blog too.
The Budget Allocation Chart is shown in PDF format to fit in the blog. There is a “Free” Microsoft Excel version available upon request through email, which will allow you to adjust the percentages.