You've finally hit the big Five-O. No, not in years, in salary. A $50,000 salary should make it possible for that dream vacation, a luxury car, a cutting-edge wardrobe and gourmet dinners with your special someone. It is not, however, a license for you to go nuts with your money. Before you start any spending sprees, you must think about how far $50,000 a year really goes.
Taxes and FICA
Taxes and FICA are nasty little critters that take a big bite out of your salary before it even hits your paycheck. Your tax rate depends on your personal deductions, but plan on losing from 15 to 20 percent to good ole Uncle Sam. If you're self-employed you'll give another 15 percent for FICA -- social security withholdings. Even if you work for someone else, 7 percent will be withheld. Your $50,000 has dwindled to $40,000.
Face it -- savings are not glamorous or a status symbol. You can't whip out your savings statement for others to admire like a luxury watch. But an emergency fund is critical to your peace of mind, and that's worth the price. Pundits say you should stash away three to nine months of living expenses. So, dividing $40,000 by 12 and multiplying by three will give you an emergency fund total of nearly $10,000. Saving $500 per month reaches that total in a little under two years.
Once your emergency fund is secure, keep stashing away that $500 per month to build up your asset portfolio.
So your $40,000 has dropped to $36,000, or $3,000 per month for your living expenses, debt payments, mortgage, food, and everything else.
The cost of housing varies wildly from neighborhood to neighborhood, never mind from city to city. An accepted rule of thumb is your mortgage, or lease payment, shouldn't be more than 28 percent of your gross salary. That would be about $1,166 per month on a gross salary of $50,000. However, that only leaves you $1,834 for all other expenses. Utilities -- electricity, water and sewage eat up another $200 per month. You're down to $1,600.
Here is where you make the first sacrifice. That luxury car is out of the question. If public transportation isn't available and you both work, you'll need two cars. Find a second-hand car, or an economy model new car. Lease payments shouldn't be more than $200 a month, so both cars would have a total payment of $400. That's doable if you keep the mileage below the lease rate and avoid an over mileage charge at the end of the lease period. Add in insurance and gasoline and you're most likely looking at total transportation costs of $700 per month.
The average person consumes at least one meal outside the home. Even if you limit yourself to fast food bargains at $3 per meal, that tops out at $180 a month for both of you. This is an area where it makes sense to brown bag your lunch, cut out the midmorning bagel and coffee, and stock the freezer with homemade dinner entrees for busy weeknights. As a bonus, you'll eat healthier.
The cost for food for two depends on whether you have hamburger or filet mignon. Limit your food budget to $12 to $13 per day, or $400 per month. Don't think that's enough? Think again. Scrambled eggs with toast for breakfast costs about $.50 per serving. A tossed salad with a can of tuna, an apple, and crackers will cost you about $1 per serving. A gourmet dinner of grilled salmon, wild rice, mushrooms and broccoli costs about $5. That totals $13. Swap out the salmon for boneless chicken breast and you'll save $2.
Clothing, dental, medical, entertainment, personal care products, haircuts, cable TV, cell phone, you name it, has to survive on the remaining $500 per month. Dental and medical care have priority. Add up what you spend on regular checkups for the year and divide by 12 for the monthly costs. Put that amount in a special account each month. Shop sales and discount stores for clothing. Research personal care products for less-expensive brands that still perform the way you want. Go basic on cable. Get movies from the library for no cost, rather than pay-per-view. Have potluck get-togethers instead of going out to dinner. Review your cell phone usage. Cut back on texting and minutes, or switch over to a program with unlimited usage if that's less expensive in the long run.