It can happen often. A couple who wants to retire yet they don’t know how much they are truly spending each year on the essentials. Just like Llyod Christmas in Dumb and Dumber, we often get confused on what are the essentials.
Without knowing how much you are spending it is hard, almost impossible to determine how much you will need to withdraw each year from retirement accounts for retirement.
Maybe you are a recent grad who just started working or living on your own. Maybe you are married and have been so for a couple of years. We all lose track of our spending from time to time. Sometimes we need a reminder to get us back on track.
Essential expenses are meant to cover exactly like it sounds, the things you cannot do without. This does not include fun stuff such as, entertainment or going to the movies. It is merely the items needed just to live.
While going through the list below you should be thinking about the budget you have in place, and if it is too much or too little around a specific item. In order to achieve savings goals, and financial freedom throughout the year you should consider these benchmarks/guidelines: Even if you are spending less or more than average it may be a good time to see where your cost are on these items:
Groceries: $450 for a family of 2, which may be higher if you have kids. This does not include dinning out or alcohol, which are one of many of life’s luxuries
Utilities: $200 for electricity, water, gas. – If you can’t have the power on, no point to own or rent a house.
Car maintenance: $100 for monthly cost – Love-em when they work, hate-em when they don’t.
Car gas and Insurance: $250 per car a month – Especially in CA where gas prices are some of the highest in the country
Car replacement cost: $250 per month – Cars a depreciating asset, and do so rapidly
Internet, phone – $200 that’s with Smartphones – still need to be connected to the world
Clothes – $200 for 2 people – Those ratty clothes will need replacing.
Home Maintenance – $150 a month – Stuff breaks, if you don’t believe me, buy a house!
Medical insurance premium – Will vary greatly by age and insurance
There you have it. Obviously if you are in the higher two tax brackets these amounts will be higher, but for the rest of us, this is a true guideline to where you should be.
So how does your budget stack up?