Wednesday 14 August 2013

Percentage Allocations

There will be no mid-month report this week as by the time this posts I will be off for my summer holidays and though I will keep an eye on the comings and goings of my hard earned dollars I will not be writing a report for you lovely folks.  Instead I though I would take a look at what percentage of my money is going to different parts of my life on average. Especially now that I've met several of my savings goals and proportions are changing.  When I started building budgets I used a variation of Gail Vax-Oxlade's "Life Pie."  I divided my money as such:

40% Housing (5% more than recommended because that's what I need to swing owning my own home)
15% Transportation
10% Savings
10% Debt (5% less than recommended because my only debt is my mortgage)
25% Life

I decided to plug my numbers into her interactive budget and see how things lined up.  Keep in mind that the numbers I used are not what I put aside per month, but what was actually spent, all amounts are based on the average for the last 7 months, and all amounts were rounded to the closest $5 except when they were a fixed expense.  I also calculated three scenarios - the first one doesn't count the amount that I pay extra towards my mortgage and the percentages are as follows:


Housing - 40%
Transportation - 2.31%
Savings - 10%
Debt - 0%
Life - 7.60%

Spending only- 59.91% of my income.  Some people would look at my Life category and ask what on earth I am depriving myself from.  The reality is nothing.  I am living the life, and I if you saw my average day you would probably agree too.  

The second scenario has my extra mortgage payments under the debt category and it looks like this:

Housing - 40%
Transportation - 2.31%
Savings - 10%
Debt - 40.09%
Life - 7.60%

I can just imagine what Gail would say if she saw those numbers without a context.  "Lord love a duck woman!  What have you done with your money!"  I guess context is supremely important in the world of personal finances.  I'm really not up to my eyeballs in debt.  

The third scenario has my extra mortgage payments under the housing category and it looks like this:

Housing - 80.09%
Transportation - 2.31%
Savings - 10%
Debt - 0.0%
Life - 7.60%

Eek!  Where do you live girl? The Taj Mahal?  Ok, this representation is a bit deceiving since half of the housing category is voluntary.  

I guess it is truly hard to capture the extent of a financial picture with only five categories and percentages.  This gives you no context or look into the intricacies of spending and saving.  What comes home to me after each one of these calculations is this; I live on 50% and I save 50%.  What does this mean?

- It means I could support myself fully, without a change in living arrangements or shift in quality of life, with a part time job.  
- It means I could live off of maternity benefits (without an employer top-up) without a change in living arrangements or shift in quality of life.  (No mom, I'm not pregnant or planning on being so, this is just the kind of information you pick up when you hang around people with babies or who are planning on having babies.)
- It means that, according to the Shockingly Simple Math behind Early Retirement, I could retire 17 years after I started working (16 years and 3 month from today)
- It means that I could take six months a year off to pursue what ever I want to


No comments:

Post a Comment