by Darrin Schenck


by Darrin Schenck


I am not sure when I first heard this, but I can tell you for sure I never heard it soon enough or often enough.  This is a key principal to financial control and success, and so I am bringing this topic to the forefront once again.  I calculated that in point of my life I was living at roughly 130% of my monthly income.  I was doing this through credit cards and leasing a car I couldn’t really afford.  Who did I think I was….the U.S. Government?!?!

Whether you are fresh out of college and just landed your first job, or you are someone who has been in the game for a while, here are some really basic rules and ratios to live by when building a life for yourself:

  1. Live within your means – Sounds logical, but many of us do a terrible job of this.  I listed this first because all of the points that follow reflect back to this core thought.
  2. Your living expenses (housing/rent/HOA fees/utilities) should be no more than 30% of your take home pay (net income after taxes).  Get a roommate (or two) to help keep this in balance if needed.
  3. Transportation expenses should be no more than 10% of your take home pay.  Remember to include insurance, gas, parking if applicable and the occasional maintenance costs in this figure, and divide over 12 months.  Hold off on buying that new Tesla for a while.
  4. Savings should be a minimum of 10% of your net income.
  5. Investing for the future should be another 10% as a minimum.  You are doing yourself a huge disservice if you do not invest early and take advantage of compound interest.  As a suggestion but not actual financial advice, check out an S&P 500 Index fund, as an easy place to start investing and just leave your money there to grow and compound.

So far we are at 60% of your monthly take home pay.  The rest will vary depending on your financial status, in school for example.  If you had student loans to get you through college, you need to address these as quickly as possible.  If you wracked up credit card debt in college or with poor lifestyle choices, you need to pay this off as well.  Monthly interest rates are sucking money out of your bank account and not doing you any favors.  The banks yes, but you…no.

You will want to get an emergency fund of a minimum of $1000 in cash as soon as you can.  This will help if you need a new car battery, blow a tire, need to buy a suit for a funeral or a job interview, etc.  Life is always throwing unseen expenses your way, so the sooner you have a cash cushion built up, the better.  If you do use it, replace the amount so you have $1000 on hand once again.  You do not want to rely on your credit card(s) for these kind of expenses, and then pay interest on them for the coming months.

The next goal after this is to have a minimum of three months of expenses on hand.  This will buy you time if you get fired from a job, quit your job for one reason or another, get ill, have to help a family member, whatever.  You will sleep better at night once you have this cash on hand; when you know you can solve most money related problems without having to pick up the phone and call a family member for help, you are on your way to real adult status.  The next step, six months on hand, and then ultimately one year’ worth.  Now THAT would put you in rarified air.

6. Paying off debt – student loans, credit cards, car loans, whatever…get rid of them ASAP.  Save                        money up so you can pay these off and get rid of monthly finance charges that eat away at your                    budget.  Your life will be proportionally easier the closer you get to being debt                         free…

7.  Food – This category can vary greatly, but try to keep it to 10% of your net income as well.  Yes,                 this includes groceries AND the food you are too lazy to make for yourself, so you order out.

8.  Fun Money – This is listed last for a reason.  I believe you should put far more focus and value on             the six points above, each month, before you go blowing money on fun stuff.  Going out to eat is                 expensive, but hitting the bars every weekend is stealing money from your future self.  I’d                             recommend keeping this at 10% of your budget OR whatever is left over once the above categories             are satisfied.  You need to do something fun once in a while, but don’t kid yourself into thinking                 that it has to be an expensive activity.  Going for a hike with friends and getting coffee afterwards               is great for the soul and will only cost you about $7.00.

There are a lot of books and podcasts about this stuff, so you can do your own research and homework if you like, but many will tell you this same ratio as a starting point.  I like Dave Ramsey’s approach to a large degree, but I personally do not think that tithing (giving to the church) is a good idea until you have your own house in order.  But that, again, is my personal opinion.  Ramit Sethi has a very different look at some of these ideas, and others do as well.  MY SUGGESTION is that you pick a few books to read or listen to, and then CHOSE ONE to follow.  DO NOT try to combine the ideas or pick and choose portions of each, as in this case I do not think that works.  You need to have one cohesive plan to get where you want to go, not a piecemeal plan of ideas that conflict with one another.

I didn’t know any of these things until later in life, and that has made me spend time and money correcting a lot of my own financial issues.  It is easy to think that now because I make $50,000 a year in my day job that I “have money”.  You will if you play your cards right, but just as easily you can spend all you have and more and find yourself in trouble quickly.  If you can put yourself on the right path as soon as possible in life, you can avoid much of the stress and headaches that I suffered through while undoing all that I did.  Living in a world where every answer to anything you have a question on is a simple google search, YouTube video, or book read away, there is no excuse for not learning how to do things correctly and efficiently.

Educate yourself now, and reap the benefits sooner rather than later.  You owe it to yourself to exercise some discipline and get yourself out from under financial burdens as soon as possible.  You will make your life easier to a large degree, give yourself options others do not have, and live a life much closer to what you hope for, versus what many end up with.

As always, I wish you luck in your endeavors

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