The 9 Category Guide to Lifelong Spending, Diversified Wealth
By: Andrew Rosen, CFP®, CEP®

“How much should I be allocating to retirement?  How much for housing?”

I get these types of questions often.  Although everyone’s situations is different, it is helpful to have some basic litmus test for reference.   Hence, I’ve created my custom Lifelong Spending Cheat Sheet to help.

Again, no one’s finances are exactly the same.  However, for this exercise I’ve narrowed my focus to clients 40-60 years old.  These are families with children, on the back end of their careers, and have $200,000 (or more) of family income.

Great.  Let’s begin.

Savings 15%-20%: If you do a Google search, I recognize this is on the higher end.  You know what?  I don’t care!  It is so critical to your financial success.  Everyone must save a sizeable percentage.  If you create good habits in your younger years, this amount shouldn’t be an issue.  If you haven’t though, it makes saving all the more important.  Keep in mind, you’ll most likely make more later in your career.  The more you make, the more you should save.  That is how it should be.

Housing 25%-35%:  This will be one of the largest variances I give.  Some people simply live in an area that they can’t avoid high costs.  Housing then becomes a large percentage of their income.  Others have large families and are forced to purchase something bigger than they would like.  Besides work, I recognize this is probably where you spend the most amount of time.  So, you should be happy with your home (as it fits into your financial world).

Automobile 5%-10%:  I won’t win any friends with this one.  Simply put, cars are horrible investments. They depreciate the second you acquire them and (for most) bring no real happiness.  (The big winner is your mechanic.)   Thus, am very conservative on appropriate spending in this category.  I know Danny Zuko and the T Birds would argue the importance of cars.  But let’s be honest, Sandy fell in love with him well before she knew he was a greaser!

Health Care & Insurance 5%-15%:  Unfortunately, this is the other big, uncontrollable, variable category.  If you work for an employer who pays some of your health care, the percentage of your income forced here can be drastic.  On other insurances (like life), I find most of us are grossly under insured.  I highly consider reviewing this to make sure you are properly protected.

Utilities 5%-10%: This is a category that doesn’t change very much and is fairly predictable.  Also this is a category that doesn’t bring much value to our lives, rather just basic necessities.  Most of us keep this in check as there aren’t too many things to drive this cost way up.  Well I should say everyone except me, that is.  My wife has the bedroom at 73 degrees while I’m stuck turning on the fan.  I can’t imagine that is good for my heating bill.

Entertainment 5%-10%:  Life is short.  I certainly understand the need for entertainment.  Therefore, I believe in budgeting for the things you really want, then doing them.  We all work very hard and deserve to spend our money without feeling guilty.  I’d rather see you spend less on a car and go on that extra vacation or sporting event with your family.  In the end, this impactful category will be something you always remember and rarely regret.

Personal 5%-10%:  This is my catchall category for things like the gym or the salon.  This is the category that spends (or should spend) the left over dollars at the end of the day.  I refer to this as the black hole of categories; once money gets earmarked here it is to never be seen again!

Food 10%-15%:  People got to eat, right?  The more money one makes doesn’t necessarily increase ones eating habits.  We may go to a few more fancy meals, sure.   But, typically we don’t aspire for more food.  Of course, if you have a houseful of teenage boys, this could very well change!

Wild Card 5%-10%:  I’ve spent almost two decades looking at people’s expense sheets and I’ve learned everyone has their “splurge” category.  It’s why I leave an extra 5%-10% allowance for clients.  Everyone is different, but we all have one.  Whether it be shoes, wine, or cars, I’ve seen enough to realize we all have a guilty pleasure.  Don’t worry though.  If you stay inline on the other categories, you’ll be just fine!

So, that’s my lifelong cheat sheet.

Balance is one of the hardest things to work on with clients.  No one wants to worry about a budget. But, it’s almost a foolproof tool.  Hopefully, this guide gives you a framework to help you and your family stay aligned with your goals.  When we build models and run forecasts for our clients, we find it much less important where they are spending their dollars.  Much more important is that their stated goals can be achieved.

With proper planning, the right emotional balance, and perhaps just a touch of luck, you should find yourself ready for the future.

[ayssocial_buttons id=”2″]

Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
Find out more about Kyle Hill, CFP®
Find out more about David Levy, CFP®