How To Calculate Percentage Of Income Paid In Taxes
How To Calculate Percentage Of Income Paid In Taxes – If you’ve never budgeted before – or you’re wondering how your spending compares to everyone else’s – you might want to see some suggested budget percentages, national averages and other useful things like these in one place.
And listen, we’re not going to give you a one-size-fits-all budget guide. Because your life is not one size fits all! How much you should spend on this and that in your budget can vary based on your income, household, location, goals, lifestyle – so many things.
How To Calculate Percentage Of Income Paid In Taxes
But there are a few standards you must adhere to. So, we’ve compiled them along with other helpful information to guide you as you set (or adjust) your budget! Are you ready for this? (Yes.)
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If these words are new to you, think of the budget category as a folder and the budget lines as files within it. Or maybe a category
Are like songs. (Hmm… maybe you should earn a good playlist to get you in the budget mood.)
One more thing: If you’re reading this while setting up your first budget, don’t stop at the numbers we give you. Look for yours! Open your online bank account or grab these bank statements and see what your past spending reveals.
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We believe in giving. Always. Tithe to your church, donate to charity, support worthy causes—even if you’re in debt. Generosity shifts the focus away from us (our problems, our financial shortcomings) and reminds us of our blessings. Giving is good for you and others, and we encourage you to give 10% of your income.
Warning: You will hear us mention the 7 baby steps. Much. It’s a proven, guided path to saving money, paying off debt and building wealth. (Also known as how to win money.)
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If you’re wondering what’s typical here, the average American saves about 9% of their income.1 But this is a great example of how a percentage or even an average shouldn’t set the standard for you. How much you save each month depends on several factors!
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When it comes to the savings category of your budget, consider these three reasons to save: emergencies, major purchases, and building wealth. Since the budget percentages for these can vary, let’s talk about each of them.
Emergencies: Put $1,000 in the bank now. (We call this a seed emergency fund or Baby Step 1.) This puts a buffer of cash between you and those
Moments. If you have debt (which we’ll cover later), keep that emergency fund at $1,000 until you’re debt-free (which is baby step 2).
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Once the debt is gone, you should save what we call a fully funded emergency fund (Baby Step 3). These are three to six months’ worth of expenses and will protect you against major emergencies such as losing your job or breaking down your car.
It’s hard to tell what percentage of your income to put into your emergency fund. Basically, if you don’t have one yet, you should cut back on all extras and invest heavily in your savings until you do!
When your car breaks down, to your complete surprise, it’s an emergency fund job. But when you know your beater is held on with tape and a prayer, that’s when you start saving up for a replacement.
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Home repairs work the same way, really. Some are surprises. Some are not. So, keep an eye on your belongings so you can
Big purchases? Like a vacation, new furniture, or that boat to make all your fishing dreams come true? You should save money for them too! But come to luxury
Again, there is no set percentage here. Just remember – the more money you throw at your goal, the faster you’ll get there!
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Once you’ve paid off your debt and are sitting in that fully funded emergency fund, it’s time to start saving for the future!
This time we have a solid percentage for you: At this stage of the game, you should put 15% of your gross income into retirement savings.
Eat in, eat out. When we’re not making or consuming food, we’re thinking about food, right? No wonder this budget line is one of the most difficult to debate.
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While we don’t have a specific percentage here, we can give you some national averages for what Americans in the “moderate” spending range spend on groceries each month:2
What about restaurant costs? The median household value is $2,375 per year (about $198 per month if you split it evenly).3
When you start budgeting, these numbers can help, but know that your family size, dietary restrictions, and your lifestyle will affect your costs here.
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As you budget from month to month, pay attention to what you’re budgeting for versus what you usually spend. Are you over budget? Why? Your expectations may be unreasonable, or your costs may be! Both can be fixed. You’ll just have to work at it.
The utilities budget category includes electricity, water, natural gas or propane, and garbage service. All of this can vary depending on where you live and how many people you live with!
Housing (or shelter) should not be more than 25% of your salary. This includes paying the rent or mortgage
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So when you’re crunching the numbers to see if you can afford that beautiful apartment complex with a pool, pet spa and playground – remember the 25%. When you plug the totals into a mortgage calculator to see if the neighborhood of your dreams will actually translate into the monthly payment of your nightmares – remember the 25%.
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If you spend anything more than 25% per month on your home, the rest of your budget will be limited and what should have been one of your greatest blessings – your home – can turn into a financial burden.
P.S. This rate will change when you are on Baby Step 6, which is about prepaying that home. When you’re mortgage free, you won’t have to worry about putting 25% down for a house! All that money can go to living (and giving) like no other!
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Gasoline, changing the tags on the car, changing the oil – it all adds up. This category will vary depending on where you live, whether you have a long commute to and from work, what you drive, and whether you have access to great public transportation. On average, American households spent in 2020:5
This category is a great example of how rates can change from month to month or year to year.
If you go to the eye doctor to update your glasses prescription or fall off the stage while performing in
Annual Percentage Rate (apr)
And literally break your leg, you will spend more on your health this month than the next when you are perfectly well. If your child needs braces, that’s several years of higher health care costs.
On average, US households spent a total of $1,034 (about $86 per month) on medical services and supplies in 2020.6.
While insurance isn’t fun to talk about or spend money on, it’s necessary. No matter where you are with your money goals or Baby Steps, these four types of insurance are essential: health, home, auto, and life.
Marginal Utility Formula
We also recommend identity theft protection, long-term disability insurance, umbrella/liability insurance (if you have a net worth of at least half a million dollars), and long-term care insurance (if you’re over 60).
They all vary depending on many different things such as your age, previous health problems, the type of car you drive, your personal driving history, the size and location of your home, your assets and the list goes on.
It’s best to do our coverage check. You can be sure you have the coverage you need – and nothing more. (Yes, crazy, but some people overpay and cover more!) You’ll also get an action plan for any coverage you’re missing.
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With childcare, we’re talking about creating a budget category that covers all the expenses that parents need to do, not extra money for babysitting for dates. (This might fall into the fun category, which we’ll talk about next!)
The average cost of child care ranges from $10,700 to $15,900 per year per child (about $892 to $1,325 per month).7 Of course, this varies depending on where you live, the type of child care you choose, and how many children you have!
If you want to buy tickets to see your favorite boy band perform with the local symphony, you’ll need a lifestyle (or entertainment) category. The average American household spends $2,912 a year here—that’s about $243 a month.8
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But let’s be honest for a second: If you’re in debt or living paycheck to paycheck without any savings — cut that budget category until you’re financially secure. Yeah, that’s bullshit to say
. It’s worth the sacrifice now to get you to a better place with your money in the future!
The amount of personal money you plan for each month depends on your income and Baby Step. If you’re saving for an emergency fund or paying off debt, any fun spending money should strike this balance: It should be low enough to help you reach your goals quickly, but
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Looking back at these national averages, US households spend $646 a year (about $54 a month)
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