One thing I noticed is debt being essential on the month, but how do you budget it if you want to pay down stuff. In you avalanche post you had a budget of 1000 , how did you come up with that number for example.
The short answer - 1) Try like hell to get 25%+ into your investment and savings. (20% should be a hard minmum IMO).
2) Put enough to cover the minimum paymets on all your debt in the essentials account. This is what you have to pay month to month. The actual % of your income that this is can vary.
3) The rest all goes in the spending account. Therefore, if you have 'spare' money from spending less than you deposit, if would accrue in the spending account only in this system. How you want to use it is up to you...including paying down debt faster with excess payments or investing even more...25% spending should be more of an upper limit than a target.
So for example, if you are living with your parents still, your essential spending may be 20% of what you make. So 20% of you paycheck gets deposited there. You are putting 25% into savings. 55% of your paycheck goes to spending account in this example...but that doesn't mean go eat balling restaurant meals. You should take ~30% of that money in the spending account and use it for savings, investing, or paying down extra debt.
To your second question. The $1,000 in the other article was just an estimate of a 'significant' amount of money for the average person. Someone making $50k a yr (less than $50k after-tax) coming up with $12k a yr JUST for credit cards, student loans and car loan debt is a lot.
This is awesome thank you! One more question popped in my head, how do you set your threshold (buffer) on the spending account? Example you used was 3k I believe. Is that the amount you recommend?
If you pay your credit card manually 1x a month & therefore check your account only 1x a month, I'd keep ~1.5x an average months spending as the buffer.
If you autopay your cards and check less often than 1x a month, I'd keep more buffer.
If you have good cashflow & wealth and don't need to try to squeeze $ out of every dollar, I'd keep more buffer.
IRL, since I pay my credit cards twice a month, I target a buffer = an average months spending out of the spending account.
In short - no science to it. You just want to make sure its enough that you don't overdraw an account & it gives you time to react.
One thing I noticed is debt being essential on the month, but how do you budget it if you want to pay down stuff. In you avalanche post you had a budget of 1000 , how did you come up with that number for example.
Great question -
The short answer - 1) Try like hell to get 25%+ into your investment and savings. (20% should be a hard minmum IMO).
2) Put enough to cover the minimum paymets on all your debt in the essentials account. This is what you have to pay month to month. The actual % of your income that this is can vary.
3) The rest all goes in the spending account. Therefore, if you have 'spare' money from spending less than you deposit, if would accrue in the spending account only in this system. How you want to use it is up to you...including paying down debt faster with excess payments or investing even more...25% spending should be more of an upper limit than a target.
So for example, if you are living with your parents still, your essential spending may be 20% of what you make. So 20% of you paycheck gets deposited there. You are putting 25% into savings. 55% of your paycheck goes to spending account in this example...but that doesn't mean go eat balling restaurant meals. You should take ~30% of that money in the spending account and use it for savings, investing, or paying down extra debt.
To your second question. The $1,000 in the other article was just an estimate of a 'significant' amount of money for the average person. Someone making $50k a yr (less than $50k after-tax) coming up with $12k a yr JUST for credit cards, student loans and car loan debt is a lot.
Hope that clears it up.
This is awesome thank you! One more question popped in my head, how do you set your threshold (buffer) on the spending account? Example you used was 3k I believe. Is that the amount you recommend?
It would depend on:
1) How much you spend a month?
2) How much $ you have?
3) How often you monitor?
$3k just seemed reasonable in the example above.
If you pay your credit card manually 1x a month & therefore check your account only 1x a month, I'd keep ~1.5x an average months spending as the buffer.
If you autopay your cards and check less often than 1x a month, I'd keep more buffer.
If you have good cashflow & wealth and don't need to try to squeeze $ out of every dollar, I'd keep more buffer.
IRL, since I pay my credit cards twice a month, I target a buffer = an average months spending out of the spending account.
In short - no science to it. You just want to make sure its enough that you don't overdraw an account & it gives you time to react.