How to figure out how much you can spend?

Making a realistic personal and family budget is perhaps the most important component of your financial independence. Below we will analyze in detail the main factors that should be considered when making a realistic budget. Knowing and following these recommendations will make it much easier to adhere to a budget far easier. It can also greatly increase the likelihood of your success with regards to your finances.

Pay yourself first

If you're lucky enough not to have credit card debt or other types of debt, put that free money into a retirement account or emergency fund.

Consider a 50/30/20 plan

Elizabeth Warren co-authored with Amelia Warren Tyagi in the book "All Your Worth: The Ultimate Lifetime Money Plan" for the first time described this approach. The plan proposed to her was as follows:

1.      After calculating your after-tax income, review your budget. The cost of a home or apartment, maintenance, food, medicine and a car should be limited to 50% of your after-tax income. This is something without which you will not be able to live fully. In other words, this is what you need.

2.      The next part should not exceed 30% of your after-tax income and may include what you want. This may include taking a vacation, overspending on dining out at restaurants. The main thing is to limit this part to 30 percent.

3.      The last part should be 20 percent and is related to paying your debts or possibly investing.

Many people find that the 50/30/20 financial plan is an ideal goal to work towards and budget for.

Consider your daily mandatory expenses

Obviously, the cost of living depends significantly on the place where you live. If you reside in a city such as Los Angeles or New York, your costs for housing and other necessities are going to be more than if you lived in a smaller town.

Take into account the uniqueness of your situation

If you have a big family, it makes sense that you will pay more for food than if it were just you. For a budget to work, it's crucial to be correct when formulating your concrete consumption. If for some reason you have short-term loans, such as cash advance or payday loans, try to get rid of them as quickly as possible. For example, you can replace them with cheaper loans.

Understanding where and how you spend your money is an important part of good budget system. Clever money managers find out that a budget must affect your income and expenses in fact. Living on your income is a basic rule of financial health. Understand that there are no such methods that can compensate for the imbalance between your income and expenses.