2025 is here! Many people participate in making New Year’s resolutions, and many of those resolutions have a personal finance theme.
One resolution I have seen people struggle with is structuring appropriate spending and saving habits. In other words, a sound budget. Personally, this is the most difficult planning task for my own family. It is tough to pull back your lifestyle or find ways to save more money. That is why I am writing this spending and savings guide. I want to help others tackle the same challenges that I have faced. I hope you gain at least one piece of helpful information from this article that you can apply to your own situation!
A healthy way to look at your spending is the 50/30/20 rule. 50% of your income should go to needs. This accounts for housing, food, utilities, clothing, commuting—your basic necessities. 30% of your income should go to wants. Your wants are made up of discretionary spending: travel, entertainment, clubs/hobbies. The final 20% should go to savings (or debt repayment, excluding your mortgage or rent).
I suggest reverse engineering your budget. Start with your monthly income/spend. Calculate the 50/30/20 amounts. Adhere to the spending amounts for each category or find where you can right-size yourself if your spending is currently off.
Now, if you’re retired, this is a 50/50 approach. 50% to necessities and 50% to wants. If you’ve done a great job saving and investing, more money for the fun in your life!
When it comes to budgeting, knowing if you have the appropriate amount of debt can be hard to see by just looking at income and debt payments. Here is a guideline to ensure you have a healthy balance of debt.
Healthy Debt Ratios:
- Housing Cost: Divide your total monthly mortgage or rent payment by your monthly gross income. This number should be under 28% to be considered healthy.
- Consumer Debt: Divide your total monthly debt payments (excluding housing) by your net take home each month. We shoot for under 20% here. This will determine if you have an appropriate amount of car debt, student loan debt, or any other debt repayment.
- Total Debt: Take all monthly debt payments and include housing. Divide this amount by your monthly gross income. Under 36% is our health standard.
After your monthly expenses, what are you doing with each dollar you have available? Here is a simple order of operations to follow. I believe following this will put each dollar you have available to its best use case. Please note this is not a one-size-fits-all plan. But for the working family, this should help optimize your savings!
- Pay off high-interest rate debt (credit cards, personal loans, etc.)
- Establish an emergency savings (goal is three to six months of expenses)
- Save cash for large expenses coming up in the next 12 to 18 months (think wedding, house, or car down payment)
- Fund your employer retirement plan up to the company match (free money!)
- Begin investing in a brokerage account and Roth IRA
- Max out a health savings account
- Max out your Roth IRA
- Max out your employer retirement plan
- Invest all the excess in your brokerage account
If you have questions on budgeting, saving, or investing, please contact your advisor and we can review some of these exercises. Now, let’s go accomplish those 2025 resolutions!
Disclaimers
The opinions and analyses expressed in this presentation are based on Curi Capital, LLC’s (“Curi Capital”) research and professional experience are expressed as of the date of our mailing of this presentation. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. Curi Capital makes no warranty or representation, express or implied, nor does Curi Capital accept any liability, with respect to the information and data set forth herein, and Curi Capital specifically disclaims any duty to update any of the information and data contained in this presentation. The information and data in this presentation does not constitute legal, tax, accounting, investment or other professional advice. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs.
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