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What to spend your salary on?

Divide your money between present expenses, past debt and your financial future

Your hard-earned money and the way you spend it is completely unique to you. Maybe your income fluctuates from month to month and your expenses are flexible, but your budget should remain as steady as possible or you run the risk of getting into financial trouble.

To check whether you’re not already in financial trouble, take our quick and easy quiz. And read on for some helpful hints about how to divide up your money in a way that makes sense for you.

What to spend your salary on

How much goes on household expenses?

What are household expenses? These are the here and now. The roof over your head and the food in your belly – we need these things to live. Everything that it takes to keep the lights on and keep everyone fed, clean and educated comes under this category. The money you spend on maintaining the basic standards of living for you and your family is a hard cost. There are smart ways to save on household expenses by opting for cheaper groceries or sharing resources such as multi-generational living, but there’s no way to completely cut out these costs.

If your household expenses are more than 35% of the total household income (your salary plus any other earners in the home), then perhaps you need to go back to basics. Make simple changes to cut down on waste. For example, put more thought into meal planning to make the most of ingredients and being sure not to throw precious groceries away. Or switching off all appliances when you’re not using them, even the hot water cylinder.

Should I be spending on financial services?

What are financial services? These are the future, the rainy day and “one day”. A portion of your salary goes towards financial services so that you can maintain your current lifestyle in the event of a change. You spend money on car insurance so that if you have a crash, you can repair or replace your car. If you didn’t spend money on car insurance and got into an accident, you’d not only have to switch to taking taxis but you’d probably be in some serious trouble.

Think of all of these kind of expenses as savings and make sure they are at least 25% of you salary. With that 25%, you are saving money for common emergencies (such as car accidents or stolen valuables), your retirement and just for the sake of saving money. You might chose to invest those savings so they grow or just keep adding to them, but it’s a great habit to get into – saving money for no specific reason but to build up wealth.

How much should debt repayments cost?

What are debt repayments? They are paying for the past. It’s money you’ve already spent on the house you live in, the car you drive, the clothes you’re wearing or the qualification that got you the job. All of those things plus interest, so debt repayment is an expense you cannot (and must not) ignore or you’ll quickly find yourself considering whether debt review is for you.

If you add up all your monthly debt repayments and the total comes to more than 35% of your monthly salary, then that’s might not be sustainable. In other words, you may find yourself not being able to keep up on paying off your loans. Debt counselling helps so many people manage unmanageable monthly repayments, and budget repair helps people improve their cash flow and credit score before taking out a new loan.

What is the true expense of emergencies?

What are emergency expenses? They are the completely unpredictable costs – not the present, future or past. Real out-of-the-blue emergencies that come at you with red-flashing lights. The nasty stuff none of us like, let alone like paying for. This money is for fixing something that breaks unexpectedly or getting the help you need when you or your family really needs it most.

Putting just 5% of your salary in an emergency savings facility is a smart move. That means when the unthinkable happens, it doesn’t destroy the budget.

Use this free budget planning tool to really customise the way you spend your salary.