Your Money Questions Answered - Part 2-SaveMoneyGuides.com
The Author
Hey, my name is admin, and I first published 'Your Money Questions Answered - Part 2-SaveMoneyGuides.com' on 11th August, 2008, within the Personal Financing section.
From-SaveMoneyGuides.com-Continuing with “Your money Questions Answered”. Here are more questions and answers from ordinary people with common money problems concerning debt, budgeting and general daily money management issues.
QUESTION:
“I remember the debt reduction concept of 40, 30, 20, 10 but would like more info on the categories for the various splits, eg: where does mortgage go and where does the electrical bill and food bill go etc Hope u can help me”
ANSWER:
Fixed costs are essential costs that are governed by your lifestyle choices, such as mortgage and rent, personal loans and credit card debt. These costs are usually determined by your lifestyle choices, the size and cost of your house, cars and major possessions, and therefore difficult to change without making major adjustments to the way you live. When people live within their means, it has been proven that the total of these costs do not exceed 40% of their net income.
Variable Costs are also essential such as electricity, food and clothing, but they are of a variable nature and therefore you have some control over how much you spend in this category. If you are living within your means, these are usually around 30% of your net income. But don’t forget about Discretionary Costs, your luxury items and incidentals such as Christmas and birthday presents, holidays etc. These should not exceed 20% of your net income. And always, always, please put away at least 10% of your income to savings that will grow into investments that will ultimately lead to independent wealth or retirement.
QUESTION:
“I am having big problems right now. I am 49 & my husband is 53. He has just started in a new job which has good potential for him to earn bonuses and I have a casual job which I just LOVE. The problem & question that I have is how do we pay for current outstanding bills… (I have put them in the Fixed costs) and they all add up to 71.39% Our Variables are 25.9% and our Discretionaries are down to 1.39% I have put away 10% for savings. I am still over (yikes) Is it acceptable to put away only 5% until we can do the 10% or will I have to work a full time job instead (which I really don’t want to do… but… I know I have to consider it). I am trying to get our 23 yr old son to pay more than $50 a week board. (like extracting teeth!!) I have cut down so much… My husband has cancelled a gym membership and I haven’t even included cosmetics… a sad story! Well, if you have time to reply, I would really appreciate it.”
ANSWER:
Firstly, you need to accurately access your Fixed Costs. These are regular, known and constant payments such as mortgage, rent, insurances, council rates, and all debt repayments. Because Fixed Costs are based on our lifestyle choices (such as the size of our home, cars, etc) and debt, these are often the hardest to reduce - but well worth it in the long run. If your Fixed Costs are too high, then you are really living on ‘the edge’, so to speak, with your finances. If you want to live within your means and want to stop worrying about money (which is the one of the greatest freedoms in life), then the Fixed Costs need to be managed. As you have already identified this - you are on the right track. Are your Fixed Costs too high because of:
- Low income,
- High cost of lifestyle choices,
- Or too much debt?
You need to identify which one of these causes is the main culprit and tackle that. Creating more income, as you have identified, is obviously the best, and often an easier choice to make. Rather than working longer hours, think laterally about how you can earn more money. Is there a special hobby or craft that you can turn into cash? Will adding more value to your work, increase bonuses and pay rises? I also think that your 23 year old son needs to be taught to be more responsible about money. He is an adult now, and if it were me, I would set stronger boundaries for him to take more responsibility around the expenses you occur on his behalf (eg. food, utilities, telephone, etc.).
Often we are too kind to our children by being overly generous, but this is not training them to manage money when they go out into the real world. It would cost your son a lot more than $50 a week to survive, if he wasn’t living at home. I hope I’m not sounding too harsh - but sometimes we have to be a bit ‘cruel’ to be kind in the long run. Teach him to save as well. I would really like you to continue saving the 10% if you can. Having savings - and later converting them into investments - gives you the feeling of security and knowing that you are managing your money!
Good Luck!
