- 50 percent: represents the amount of your lifestyle spending and debt payments
- 30 percent: represents the amount you pay in taxes including federal, state and payroll taxes
- 20 percent: represents your savings, including retirement savings as well as personal and college savings
Think about it
Too often people make the mistake of starting an exercise like this by focusing on the largest piece first: personal spending and debt payments.
It is a mistake to start with the 50% category first because it is the most difficult category to define and track accurately. How many times have you started or revised a personal budget? Do you like tracking your monthly spending? Most people do not. For this exercise, you won’t have to either – there is a better way…