How to Manage Money – Spending Recommendations

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How to Manage Money – Spending Recommendations

In previous blog messages,  I suggested that you make a list of your expenses and a list of your income. You also took a look at your savings goals. All of those were created sort of without any guidelines. They were created in reference to your own spending and saving habits and desires.

We’re now going to talk about some guidelines that will help you create a framework for your expenses so that you know how much you should be spending and how much you should be saving. These guidelines will give you some parameters to work with. Let’s first talk about fixed costs.

Fixed Costs

Fixed costs are things like rent, utilities, and insurance. They generally take up a little bit more than half of your take-home pay. So for example, if you make $4000 a month, your fixed costs will probably be between $2000 a month and maybe $2500 a month. The guideline for fixed costs is to have them be between 50 to 60 percent of your monthly income.


Investments are things like your retirement accounts, your IRA and your 401k. They should generally be around 10 percent of your take-home pay. Again, if you’re looking at $4000 a month in income, you should generally be investing about $400 of that money for retirement. You can give or take a little bit here because this is just a guideline; however, it’s always nice to save a little bit more if you can afford to.


Your savings is different from your investments. With savings, you’re looking at your larger savings goals. We’re talking about things like a new car, a new house, a vacation, or your emergency savings account. Generally speaking, these are about 5 to 10 percent of your income. Continuing with the example, if you’re making $4000 a month then you’re looking at saving about $200-$400 a month.

If you add it all up, this leaves a good chunk of your monthly income for spending money. It’s important to enjoy your money too. 

[bctt tweet=”Pay your bills after paying yourself first. It’s important to enjoy your money too. ” username=”via lmcknightspeaks”]


Spending money includes things like dining out, going to the movies, buying new clothes and anything that is sort of above and beyond your other expenses. In theory, this should be guilt-free spending. You’ve paid your bills. You’ve saved money for retirement and for your savings goals.

This is your money to have fun with and it’s about 20 to 35 percent of your monthly pay. Based on the $4000 monthly income, that’s at least $800 a month that you can spend on fun stuff. That’s not too bad, right?

Remember these are just guidelines. They are here to help provide a framework for you to use as you create your financial systems and begin to organize your money.

Let’s expand more on this topic on the TKO podcast. CLICK HERE to learn more about Money Management on Monday’s at 9p.m. EST.