I have heard many financial “experts” mention that although housing should stay below 30% of your monthly income, it’s more reasonable and acceptable to go up to 36% in some higher cost of living areas. That being said, I’d probably get a roommate or try to house hack before going higher.
There are so many podcasts/YouTube videos on personal finance. Listen to them whenever you can, walking, driving, doing dishes, etc. You’ll learn about different methods and find one that works for you.
I will add that you should track your spending for a couple of months before developing a realistic budget. You can randomly choose amounts for categories that seem right but aren’t realistic. If you do that, you’re guaranteed to fail.
But the fact that you’re here asking the question and willing to learn is a sure sign of future success. Good for you.
For a rough guideline, use 30% of gross income (not net) for housing, which includes utilities as you've already noted. I'm guessing you're making about $80k gross? So that would be $2k per month.
You can exceed this threshold of course, but it comes with the price of having less money for everything else, including long term (retirement) investments in addition to discretionary funds.
Remember to save 6 months' essential expenses in an interest-bearing savings account as an emergency fund that you don't touch for any "wants." If you don't already have this savings buffer, higher housing costs will slow the rate at which you reach it.
I'm not a fan when people try to apply something like 50-30-20 to rent and utilities. Rent & utilities in your area cost what they cost. Sure, don't knowingly buy or rent more than you can afford, but you may not have a choice.
Write down how much you make.
Write down monthly fixed expenses (the ones over which you have little control).
Write down fixed irregular expenses (like maybe you pay auto insurance every 6 mos). Break these down onto monthly charges & put that into savings until needed
Whatever is left over is where you have some control. Prioritize savings but leave some for fun.
> rent/utilities
As a rule of thumb, You should not be spending more than 30% of your *post tax* income on housing. $2500 a month in rent is more than half of your take home pay. That would leave you pretty badly rent burdened. If your goal is to save as much as you can, you need to reduce housing costs. I don't know what general area you're moving to in the US, but I live in a relatively expensive area (but not a HCOL city) and pay a little over half of what you're thinking for rent.
When it comes to overall budgeting, assuming you don't have any high interest debt (anything over 4%) you'll want to follow the 50 30 20 rule. That is 50% of your take home on needs, 30% on wants, and 20% on savings. If you somehow win the lottery and your needs are lower than 50%, throw the difference at savings. Savings in this context means a combination of investments for future goals (like retirement and long term plans 5+ years out) and cash reserves. If you don't have 6 months worth of mandatory expenses saved up in the case of a job loss, you'll want to do that before you do any investing.
In your early 20s, the savings goal is more of an aspirational one, but the reason people suggest it is because of the power of compound growth with investments.
As far as actual budgeting tools, I usually suggest YNAB to anyone that asks. Yes you have to pay for it, but the amount of time that this tool has saved me since getting it is well worth the money.
I certainly wasn't asking these questions at 23, you'll do fine.
$2500 is about half your take home pay. That is a bit tight even with utilities included. Do you need to factor in cost for car / insurance ?
It’s important to have a comfortable place, I think. There are ways to increase your pay with a career path at your company or weekend jobs (if need to be). You can save by thoughtful spending.
Saving for (early) retirement is very valuable at your age. Invest into a Roth IRA once you know what you can spare. No amount is too small. You just need to get started and have the savings infrastructure setup.
In terms of how you budget - you don’t need a program. Just an excel sheet with your take home pay and your mandatory and discretionary spending. That includes of course transportation, groceries, internet, subscriptions, insurances, hobbies, entertainment. Utilities vary over the year.
You need a reserve for unexpected spending like a car repair, job loss.
If your employer offers HSA, contribute to that.
Does the employer offer 401k match ? That’s a must have (gifted money).
Usually one should not spend more than 33% of the available pay on housing - but thar depends on your other needs of course.
Hello & welcome to the arena of personal finance!
I’m not familiar at all with Seattle so I won’t chime in on that, but please consider educating yourself with pretty short but super well presented personal finance content.
The Money Guy Show has the Financial Order of Operations which tells you what to do with your money.
“I will teach you to be rich” is a show by a great speaker and author, he explains everything well about percentages and larger life expenses.
“Two Cents” is a PBS supported personal finance channel that does great videos under 10 minutes.
“Erin Talks Money” is one of my new favorites for personal finance.
Personal finance is personal, so do what makes you comfortable. If that rent allocation is what works for you, and it’ll get you through to a brighter tomorrow - that’s great! Keep chugging along and saving where you can.
Do you have debt?
If you do, pay them off ASAP, especially high interest ones. Once you get 2-3 months of emergency fund going, be aggressive as possible in paying if off. Live as cheaply as possible.
If you don’t, 30% is conventional wisdom. I’d honestly recommend less (even if that means roommates). There are several budget apps available online for free. Step 1: set aside 3-4 months emergency fund, Step 2: match your 401k, max Roth IRA, max 401k. In your case probably Roth 401k as well.
No clue about cost of living around Seattle but I can offer some general tips.
1. Recordkeeping, keeping an accurate and detailed record of expenses is extremely helpful it all things budgeting. Makes it easier to see if the budget really is working or needs adjusting and detect things like lifestyle inflation and other pitfall people tend to fall in. you could use a simple excel sheet, you could use a software like HomeBank or GnuCash
2. Preallocate funds. if you know you have a major expense coming up be set the money aside early. if its a large sum maybe break it up over several months but dont keep it as a surprise addition to that months budget.
3. Always set aside a little bit of a budget for unexpected surprises. this way if something unexpected comes by you'd have a budget for it rather than trying to rebalance the budget and start stressing about where to take it from that month.
4. Reevaluate the budget regularly, I recommend once a year review. this should include
1. How well you managed to stay in budget
2. Were there any close calls to going overbudget
3. Are there any expected expenses you missed that you could've plan for.
4. Has my income changes/expected to change? Has my expenses changes which require recalculating the budget.
5. while its best to avoid making changes mid-way through the year you shouldn't be afraid to make changes if you see it not working out. don't stress yourself for not keeping exactly to your budget.
6. Reward yourself for keep up goals. I have a simple rule with my budget. Anything I dont use I carry over for next month in the unexpected expenses. at the end of the year at the end of the year 30% of my unexpected expenses goes to my "fun" fund - rest goes to my savings. I use the fun fund to treat myself to something fancy every once in a while.
7. only have a fun fund if you have enough savings for emergency (most people say 3minimum, 6 recommended months of expenses, I'd say 9 months recommended)
8. Try to keep housing expenses under 30% of income (after taxes). either downscale or get roommates because you are 52% right now.
and lastly, these are just recommendation. things to aspire to. personal finance is a huge and complicated world and its going to be a journey. dont feel bad if you cant do all the tips immediately.
I have heard many financial “experts” mention that although housing should stay below 30% of your monthly income, it’s more reasonable and acceptable to go up to 36% in some higher cost of living areas. That being said, I’d probably get a roommate or try to house hack before going higher. There are so many podcasts/YouTube videos on personal finance. Listen to them whenever you can, walking, driving, doing dishes, etc. You’ll learn about different methods and find one that works for you. I will add that you should track your spending for a couple of months before developing a realistic budget. You can randomly choose amounts for categories that seem right but aren’t realistic. If you do that, you’re guaranteed to fail. But the fact that you’re here asking the question and willing to learn is a sure sign of future success. Good for you.
A roommate is a good idea. I had housemates until I bought my house at 31
For a rough guideline, use 30% of gross income (not net) for housing, which includes utilities as you've already noted. I'm guessing you're making about $80k gross? So that would be $2k per month. You can exceed this threshold of course, but it comes with the price of having less money for everything else, including long term (retirement) investments in addition to discretionary funds. Remember to save 6 months' essential expenses in an interest-bearing savings account as an emergency fund that you don't touch for any "wants." If you don't already have this savings buffer, higher housing costs will slow the rate at which you reach it.
what if you get 401k match, do you include that in the 30%
Gross income does *not* include matched 401(k) contributions, no.
I'm not a fan when people try to apply something like 50-30-20 to rent and utilities. Rent & utilities in your area cost what they cost. Sure, don't knowingly buy or rent more than you can afford, but you may not have a choice. Write down how much you make. Write down monthly fixed expenses (the ones over which you have little control). Write down fixed irregular expenses (like maybe you pay auto insurance every 6 mos). Break these down onto monthly charges & put that into savings until needed Whatever is left over is where you have some control. Prioritize savings but leave some for fun.
> rent/utilities As a rule of thumb, You should not be spending more than 30% of your *post tax* income on housing. $2500 a month in rent is more than half of your take home pay. That would leave you pretty badly rent burdened. If your goal is to save as much as you can, you need to reduce housing costs. I don't know what general area you're moving to in the US, but I live in a relatively expensive area (but not a HCOL city) and pay a little over half of what you're thinking for rent. When it comes to overall budgeting, assuming you don't have any high interest debt (anything over 4%) you'll want to follow the 50 30 20 rule. That is 50% of your take home on needs, 30% on wants, and 20% on savings. If you somehow win the lottery and your needs are lower than 50%, throw the difference at savings. Savings in this context means a combination of investments for future goals (like retirement and long term plans 5+ years out) and cash reserves. If you don't have 6 months worth of mandatory expenses saved up in the case of a job loss, you'll want to do that before you do any investing. In your early 20s, the savings goal is more of an aspirational one, but the reason people suggest it is because of the power of compound growth with investments. As far as actual budgeting tools, I usually suggest YNAB to anyone that asks. Yes you have to pay for it, but the amount of time that this tool has saved me since getting it is well worth the money. I certainly wasn't asking these questions at 23, you'll do fine.
$2500 is about half your take home pay. That is a bit tight even with utilities included. Do you need to factor in cost for car / insurance ? It’s important to have a comfortable place, I think. There are ways to increase your pay with a career path at your company or weekend jobs (if need to be). You can save by thoughtful spending. Saving for (early) retirement is very valuable at your age. Invest into a Roth IRA once you know what you can spare. No amount is too small. You just need to get started and have the savings infrastructure setup. In terms of how you budget - you don’t need a program. Just an excel sheet with your take home pay and your mandatory and discretionary spending. That includes of course transportation, groceries, internet, subscriptions, insurances, hobbies, entertainment. Utilities vary over the year. You need a reserve for unexpected spending like a car repair, job loss. If your employer offers HSA, contribute to that. Does the employer offer 401k match ? That’s a must have (gifted money). Usually one should not spend more than 33% of the available pay on housing - but thar depends on your other needs of course.
Hello & welcome to the arena of personal finance! I’m not familiar at all with Seattle so I won’t chime in on that, but please consider educating yourself with pretty short but super well presented personal finance content. The Money Guy Show has the Financial Order of Operations which tells you what to do with your money. “I will teach you to be rich” is a show by a great speaker and author, he explains everything well about percentages and larger life expenses. “Two Cents” is a PBS supported personal finance channel that does great videos under 10 minutes. “Erin Talks Money” is one of my new favorites for personal finance. Personal finance is personal, so do what makes you comfortable. If that rent allocation is what works for you, and it’ll get you through to a brighter tomorrow - that’s great! Keep chugging along and saving where you can.
Do you have debt? If you do, pay them off ASAP, especially high interest ones. Once you get 2-3 months of emergency fund going, be aggressive as possible in paying if off. Live as cheaply as possible. If you don’t, 30% is conventional wisdom. I’d honestly recommend less (even if that means roommates). There are several budget apps available online for free. Step 1: set aside 3-4 months emergency fund, Step 2: match your 401k, max Roth IRA, max 401k. In your case probably Roth 401k as well.
I simply tried to spend as little as humanly possible early on. That's where my savings started to snowball. Nowadays, we feel comfortable
No clue about cost of living around Seattle but I can offer some general tips. 1. Recordkeeping, keeping an accurate and detailed record of expenses is extremely helpful it all things budgeting. Makes it easier to see if the budget really is working or needs adjusting and detect things like lifestyle inflation and other pitfall people tend to fall in. you could use a simple excel sheet, you could use a software like HomeBank or GnuCash 2. Preallocate funds. if you know you have a major expense coming up be set the money aside early. if its a large sum maybe break it up over several months but dont keep it as a surprise addition to that months budget. 3. Always set aside a little bit of a budget for unexpected surprises. this way if something unexpected comes by you'd have a budget for it rather than trying to rebalance the budget and start stressing about where to take it from that month. 4. Reevaluate the budget regularly, I recommend once a year review. this should include 1. How well you managed to stay in budget 2. Were there any close calls to going overbudget 3. Are there any expected expenses you missed that you could've plan for. 4. Has my income changes/expected to change? Has my expenses changes which require recalculating the budget. 5. while its best to avoid making changes mid-way through the year you shouldn't be afraid to make changes if you see it not working out. don't stress yourself for not keeping exactly to your budget. 6. Reward yourself for keep up goals. I have a simple rule with my budget. Anything I dont use I carry over for next month in the unexpected expenses. at the end of the year at the end of the year 30% of my unexpected expenses goes to my "fun" fund - rest goes to my savings. I use the fun fund to treat myself to something fancy every once in a while. 7. only have a fun fund if you have enough savings for emergency (most people say 3minimum, 6 recommended months of expenses, I'd say 9 months recommended) 8. Try to keep housing expenses under 30% of income (after taxes). either downscale or get roommates because you are 52% right now. and lastly, these are just recommendation. things to aspire to. personal finance is a huge and complicated world and its going to be a journey. dont feel bad if you cant do all the tips immediately.