What's up you guys, it's graham here so about a month ago, i made a video going over exactly how much money you should have saved up by every age and each milestone you should aim to hit by every decade and in that video. Quite a few of you were very happy to hear that if you have less than negative 27 000 saved up by the age of 20 years old, then statistically, you're ahead of the average u.s population for your age. Wait a second! If you have more than negative 27 000 does that imply more debt, or is it that you have less than negative 27 000 worth of debt because you have less of it? Well, i have no idea, that's why i make youtube videos anyway. Quite a few of you enjoyed that video, so i wanted to step it up a notch and instead of talking about how much money you should have saved up by every age, let's talk about something a little bit more provocative, and that would be how much money You should spend by every day because, let's face it, we live in a world where we have to spend money and it's really up to us to decide if we can or cannot afford something.

So, let's go over everything you need to know about how much money should really be spending throughout every single category, from housing, transportation, utilities, health, insurance, coffee, you name it, and to do that, we're going to be going over what the experts call the 50 30 20 Rule for managing your money and then after that i'll give you my thoughts as to how much money you should be spending for everyday items based on how much money you make and then, of course, as usual, if you wouldn't mind budgeting the like button until it Turns blue for the youtube algorithm. It really helps me out and the more like buttons get pressed on this channel, the more iced coffee i can afford to drink, which gives me energy to make even more youtube. Videos wait a second who am, i kidding just smash. It and destroy it and obliterate the like button until it's no more and then once that's done.

Let's begin the video right here, thank you very much and when it comes to successfully managing your money and building your wealth so that you're not living paycheck to paycheck. This is probably one of the most widely used rules of thumb out there and it's called the 50 30 20 rule. The basics of this are extremely simple for anybody to understand in less than a minute, which is probably why it's so popular today, and this is what it is. First, you take your after tax income, which is obviously the income you have left over after paying your taxes, and you divide that up as follows: 50 of that income should be spent on your needs or in other words, things you absolutely have to have in order To survive, this is meant to be your mandatory expenses that you need to pay every single month so right there, half your income is already spent on this.

Next 30 of your income should be spent on your wants. Now these are things you don't need to have, but they're nice to have. This could include going out to restaurants shopping for new clothes going out to the movie theaters if those ever come back and so on. These are the things that make life a little bit more fun, but at the end of the day you don't need to have them and they're just optional.

And finally, the remaining 20 should be spent on savings spent on savings. Can you spend your savings if you're saving them anyway? Let's, let's go with it. The remaining 20 should be spent maxing out your retirement accounts paying down debt coming up with a six-month emergency fund or betting. It all on call options, because you saw a post on reddit's wall street bets about how purple would be the next big investment.

But how accurate is this 50 30 20 rule really, and this is actually something you should follow. If you want to be wildly rich. One day or be able to retire early based on saving 20 of your income, because i'll be the first to tell you. If you follow this advice, it's going to be nearly impossible to get off the hamster wheel of life and be able to retire early.

And here's why, if you save and invest 20 of your income every single year, and we assume that your investments are generating a seven percent return with inflation? It's going to take you 37 and a half years for your investments to grow, to a value where you could retire from, what's known as the four percent rule. This is the formula that says you could spend four percent of your portfolio every single year for 30 years, while maintaining the exact same lifestyle. Although, let's be real, i don't know about you, but almost 40 years of doing this every single year, just to be able to retire, doesn't sound like a good money management style to me. And finally, these categories get wildly absurd.

The more money you end up making and all of a sudden, the relative cost of buying something becomes a smaller and smaller percentage of how much money you make. For example, let's take a look at this perspective if you make fifty thousand dollars a year after taxes spending. Ten percent of your income on food is five thousand dollars a year, and that would be reasonable for most people. But if you make five hundred thousand dollars a year spending, ten percent of your income on food is fifty thousand dollars a year and that's absolutely absurd.

So, as you can see, even though this might work for some income brackets, the more money you make, the more this becomes very inaccurate. So, let's go over the actual amounts of what you should be spending in every category, i'll go over what the experts recommend and then i will go over my own recommendations so that that way you could maximize the value of every dollar and budget correctly. So, let's begin with that needs category, and for most of us, housing is the first thing that comes to mind and when it comes to this, most experts recommend that housing should not exceed one-third of your income. So if your rent is fifteen hundred dollars a month, you should be making forty five hundred dollars a month or if you calculate this backwards for every three thousand dollars a month that you earn, you could spend one thousand of that on housing.

Now. This is something i partially agree with and as a landlord, i will only rent to people who earn three times the monthly rent, because otherwise, i'm concerned, if an unexpected expense comes up, they're not going to have enough money to pay all of their bills. However, as someone is really into personal finance, i would much rather suggest that for most people they try to aim for more, like 25 percent of their income on housing at the very most or, if at all possible, more like 20 of their income, really the gist Of this is spend as little on housing as you possibly can, and i know this might be really difficult to do depending on where you live, and in places like new york, san francisco and los angeles, it's pretty much impossible if you're making less than a hundred Thousand dollars a year, but if you can get your housing down by potentially living with roommates, moving to a less expensive area or renting out a bedroom or two from where you live, i would highly recommend it not to mention you can always spend more money on Housing later, if you absolutely need to but saving as much money now up front, is going to get you much further ahead. If you could do it next, we have to talk about another need for most of us, and that would be our car or transportation cost.

Now the conventional wisdom when it comes to this is that your total cost for transportation should not exceed 15 of your income and the total price you pay for a car should not exceed 35 percent of your annual salary. So using this metric, if you make 50 000 a year, the most you should spend on a car is 17 500 and the total cost should not add up to more than 7 500 a year for your payments, insurance, gas repairs and so on, and i would Say for most people who go and buy new cars every few years equivalent to their annual salary. This is pretty good advice. However, i would still caution people from still spending that amount of money in a car, especially if you don't absolutely have to, and instead i much prefer the dave ramsey approach when it comes to how much money you should be spending on transportation.

He recommends that your transportation costs not exceed 10 of your annual income. You should never go and buy a new car unless you have a net worth of more than a million dollars, and i would go so far to suggest that if you go and buy a car, the cost of the car should not exceed 25 of your annual Income, so if you're, making 50 000 a year go and spend 12 500 on a new car at the very most that won't go down much in value and again this is a maximum. So if you own your car outright - and it's only costing you 200 a month for gas repairs and maintenance insurance and so on, that's great keep it that way for as long as you can and just save the difference and remember the more money you make, the More ridiculous, it becomes to spend 10 of your income on transportation, but then, after that, we got to talk about food and the general rule of thumb when it comes to this is that you should not be spending more than 10 to 15 percent of your income. On food, which i think overall is pretty reasonable, depending on how much money you make, that means that the person making 40 000 a year after taxes is spending anywhere from 330 to 500 a month on groceries, restaurants, food and so on, which again is reasonable.

However, i personally believe that your food budget should not necessarily go up relative to how much money you make like if you're earning a hundred thousand dollars a year spending twelve hundred and fifty dollars a month on food is absolutely ridiculous. Why would you do that? I would say a better guide here is to spend ten percent or six hundred dollars a month on food, whichever is less oh sure, if you're making 250 000 a month going out for happy hour sushi once a week is not gon na break the bank. If you just barely go over that 600 mark, but just use common sense and don't get carried away on food just because you make more money next, we'll talk about other necessities like health insurance utilities and so on. And when it comes to this, most professional budgets recommend that you spend another 10 to 15 between the two which sounds reasonable, depending on how much money you make.

However, just like the food budget, your utility and health insurance budget should not be going up. The more money you make like your health insurance is not going to magically go up 10 times from when you make 50 000 a year to 500 000 a year. So here's what i think is reasonable health insurance could easily be 5 or more of your income. So anywhere from 200 to 500 a month for a single person depending on your age, your coverage and where you live, it's really hard to put a maximum amount to spend here, because this is your health we're talking about.

But i would say overall we'll round this off to about five percent a year, then, as far as utilities go generally for most people you're going to be spending anywhere from 50 to 250 a month depending on where you live, and how hot or cold you like To keep your house or whether or not you do laundry during off-peak electrical hours, which you always should so i would aim to budget about 3 of your income or five to six hundred dollars a month at the very most for most people. In most circumstances. Again, no more than that that now leaves you with 52 of your income at the very minimum leftover to do with whatever you want, and this is where things get good to start, i would allocate 10 of your income to literally do whatever you want with. I know this sounds like i've been abducted by an alien and replaced with a deep fake here on youtube for even suggesting something like this, but seriously spend 10 of your income on whatever you want, whatever you see fit as long as it's within reason, it makes You happy and you're not an idiot about it.

If this is money you want to put towards getting a slightly nicer house, then go for it. If this is you going and getting a slightly faster car, then go for it as long as it does not involve spending money at starbucks. I think it's important that you're able to spend some money on things that you enjoy and 10 of your income is enough to get it out of your system without totally breaking the bank. I have a feeling the psychological aspect of this is going to make budgeting and planning and saving that much more enjoyable without feeling like you're, depriving yourself just for the sake of saving more money.

Think of this one, a little bit like your cheat meal, so that you don't just go and save money, save money, save money and then all of a sudden you go and blow it in one go, and this is all okay as long as that does not Include any spending at starbucks because that's a waste of money, and now that means you have 42 left over to do something really special with, and you guys know me if you watch the channel by now. You know what i'm gon na say: smash the like button for the youtube algorithm and then save and invest the difference. That's right, 42 of your income should go right to investments in this order. First, if you have any high interest rate debt above 5, you should use some of this money towards paying that down.

But assuming now you don't have any debt or any debt you do have is under 5 interest. Then here's what i would do with your money. The first thing i would do is build up a six-month emergency fund in cash held within a high interest. Savings account this one is pretty self-explanatory, but it's always a good idea to have some cash sitting on the sidelines in case of an emergency or something unexpected comes up, but once you've done that the next step should be maxing out your 401k up to your employer Contribution, if this is something they offer see, sometimes employers will match you dollar for dollar within a 401k up to a certain amount.

So if this is something that's offered to, you always do this, no matter what it's pretty much free money so always contribute up to the employer maximum in every situation. After that, the next six thousand dollars that you invest should go towards maxing out a roth ira. This is a retirement account that lets you contribute post-tax money and then any profit you make within that account is completely tax free by the age of 59 and a half. You should always take advantage of this account when you can and investing six thousand dollars in this every single year is going to be a really good use of your money from there.

Whatever remaining money you have left over should go towards any sort of taxable account or any investment that will just grow in value over time. That might include using the link down below in the description and getting two free stocks when you deposit 100 on weeble, because one of those stocks could potentially be worth all the way up to 1 400. So if you haven't done that, yet you may as well just get your two free stocks in the description and let me know which two free stocks you get but seriously investing money like this into stocks, real estate or index funds, is going to be a very Good strategy for you to use with anything that's left over and even better at a 42 savings rate, you would easily be able to retire in about 20 years using the 4 rule, which means, if you start doing this at 20 years old, you would be able To retire by the age of 40, if that's something you want to do, but just by following this, a 20-year time frame for retirement is absolutely possible with this budgeting technique, and it's still going to give you a lot of flexibility with this just in case. Something goes wrong, however, i'm not quite done yet, even though we've now budgeted a hundred percent as seen right here, i'll put a cool little graph up right here that i made myself in photoshop.

This spending is not treated equally see what most people do is they cover all of their expenses first and then, whatever is left over if anything is saved, although for this budget to work, we have to reorganize it right off the bat forty percent of your after-tax Income is going to be saved without even thinking about it right from the very beginning and really once you do this, the hardest part is over and then the rest of the money could be budgeted appropriately. You might also be wondering about that missing two percent. Well, realistically, no one ever budgets down exactly to the dot each and every month most people are just gon na naturally fluctuate about five to ten percent month over month, depending on what expenses come up, so just go ahead and take that two percent as a buffer. If you need it, but some people will need more than this other people less than this.

This is just meant to be a rough guideline. It's also really important to acknowledge and mention that the more money you make, the more these percentages just get out of whack. So once you begin hitting some of these maximums, you should just get in the habit of investing and saving the difference consistently, and also i get it. 40 is a lot of your income to save.

I don't expect this to be an overnight transition for anyone, especially if you're already spending a lot of money. However, i strongly recommend you begin tracking your expenses, saving your money, cutting back as needed, while still working at the same time to increase your income, so that that way, you're able to save more money, then, over time, a 40 savings rate is going to be a Lot more achievable, and by following the 40 10 50 rule, it's going to be way easier to save money. Long term you'll be able to achieve financial independence that much faster and you'll be able to smash the like button for the youtube algorithm. So with that said, you guys thank you so much for watching.

I really appreciate it as always make sure to subscribe and hit the notification bell also feel free to add me on instagram, i posted pretty much daily. So if you want to be a part of it, there feel free to add me there. As on my second channel, the graham stefan show i post there every single day - i'm not posting here. So if you want to see a brand new video for me every single day, make sure to add yourself to that and then, like i mentioned, if you want two free stocks use the link down below in the description and weeble is gon na, be giving you Two free stocks, when you deposit a hundred dollars on the platform with one of those stocks, potentially worth all the way up to one thousand four hundred dollars.

So if you want these two free stocks use that link down below, let me know which two free stocks you get. Thank you so much for watching and until next time.