Follow these 3 tips to live comfortably
Building a budget is a great way to ensure you aren’t spending money wildly, but there is more to a budget than meets the eye. In short, every budget must take into account the cost of living and exactly how much money one needs to make in order to live comfortably. Living comfortably depends as much on the average income as it does on the cost of living in an area. Simply put, if you don’t make enough money, there is no way to stretch a budget, or massage the numbers to work. So, how much money do you really need to live comfortably?
The 50-30-20 Rule
Budgeting experts often suggest using the 50-30-20 rule to figure out if you can live comfortably on a budget. In this breakdown, 50% of your net salary goes toward necessities—bills, housing, and food. 30% of your salary goes toward discretionary spending, and 20% of your salary is saved.
For an individual who takes home $50,000 every year, that means $25,000 should be utilized on necessary expenses. $15,000 can be allotted to discretionary spending, and $10,000 can be put aside for savings. Using this model, an individual making $50k should aim to spend roughly $2,000 a month on necessary bills, and $1,250 a month on discretionary spending. $833 per month should be set aside for savings.
For example, in Saginaw, Michigan the average household income is $43,383. Based on the median household income, $21,691 can be spent each year on necessities, $13,014 can be spent on discretionary purchases, and $8,676 can go toward savings.
Cost of Living
The cost of living also comes into account when trying to figure out how much money you’ll need to live comfortably. The average income differs from state to state, and, in many cases, from city to city. The same is true for the cost of living. Those living in New York, for example, will need to earn a much higher income to live comfortably than those living in Kansas. San Francisco residents need roughly $120,000 per year to apply the 50-30-20 rule to their income based on the cost of living in the area. Detroit residents, on the other hand, need to earn $42,000 per year to live comfortably on the 50-30-20 rule.
Michigan residents are lucky in some ways. Cost of living, in comparison to the average household income, is relatively low. That means you’ll need to earn less to live comfortably, than someone who lives in a higher cost of living location, like New York or San Francisco. According to Trulia, the average housing price is around $120,000, although there is a wide disparity between counties. Rent for a traditional one bedroom apartment in Michigan has an average cost of $750.00 per month. Based on the 50-30-20 rule, you could live comfortably making around $45,000 per year. This would leave enough money for regular bills, discretionary spending, and allotted savings.
Everyone is Different
While it may seem like a good idea to figure out average income in your area and decipher if you could potentially live on such an income, it is important to remember that everyone’s budget is different. Young adults with high student loan debt will have to lay out more money each month on necessities, than a young adult who has not incurred any student loan debt. Young families may also have more to output on a monthly basis, than a single professional living on his or her own. The quickest way to a financially comfortable life is to work out a personal budget and stick to it.
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