Another lesson in the way nature works and affects our lives. Some call it nature some spirit some god it doesn't matter the results are exactly the same. Nature is always slightly out of balance. That's what causes anything to get done. People are hungry they seek food. They want shelter they build or buy a house or rent. As I've pointed out before when the balance gets too far out of wack problems result. Now I can't wave a magic wand and have all your financial problems go away but I can tell you some of the rules of thumb that have been used for the last 60 years that got our parents and grandparents through life. It's all based on averages and percentages. Once you know these facts you'll have a very good idea of where you stand financially at any given time.
How much can I spend on:
The most important expense before you spend on nickle on a budget is savings 10% minimum 15% or more if you can afford it.
1. Rent/housing 25 -30% of gross monthly income - Some financial books say up to 50%. I find that too high. I like to think of using 25% of your monthly take home pay or about a weeks pay.
2. Food 10 - 14% weekly net
4. Electricity 7%
5. Entertainment 5%
6. Misc 3%
It's very important if you have a job in which your income changes on a regular basis to start a savings even if you don't plan to invest it as it grows. Call this additude money and don't touch it. As it grows you can borrow against it giving you a lower interest rate and a better credit score.
When you borrow money try to get the shortest payback period you possibly can. A car loan at five or six years will kill you in the long run. First the car looses 10% in value when you drive it off the lot. Second as you continue paying for it the value continues to drop until you land upside down in the loan. That means you'll owe far more than you could ever hope to get for the car if you had to sell it. Leases are definitely not the way to go either even though the up front costs might seem great. You land up going over the set milage and have to pay some times .25 cents a mile plus a residual (that's what the dealer considers the remainder of the value of the car) when you go to turn in the car at the end of the lease. Leases have become such money loosers with both the dealer and the consumer that most car companies are dropping them all together.
I try to pay off all things like TVs, appliances, and small items like that within three months. I never take an extended warranty on any of this. Most appliances break down if they weren't made right in the first 90 days and most come with a 90 day warranty. Most extended waranties are a rip off anyway. They always seem to have a way out of paying for repairs at a cost of nearly the price of what you've bought. Always check out product reviews by regular people. You'll find out what to look out for before making a purchasing mistake. As far as appliances go simplier is better. Less to go wrong. I bought a coffee maker once with a lot of bells and whistles only to find out by reading the reviews that it would crap out and it did in one year. So I bought a simpler one that I've had for five years with no problems. I have a microwave that's over 10 years old now and wasn't suposed to last 5 or 6 and it was fairly cheap.
So I guess the basics of this economics lesson is to spend less than you make and to do that, save first, pay bills after.
Now let's sit back and watch the empire collapse.