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How much should I spend?
Before deciding how much you should spend, it is advisable to understand how your monthly budget is progressing, and what you can reasonably afford. The attached Excel spreadsheet is based upon the budgets that I have been preparing for myself for the last 20+ years. It helps to understand your financial priorites more clearly. Quite simply, all you need to do is enter the amounts you have spent in the last 12 months on each item (amend the headings to your personal preferences), and then when you have spent an item in a month put in the correct figure. After 13 months you will have created for yourself an effective budget which will guide you in how much you are spending, and more importantly where you are spending money. It is only a guide for your use and is not a substitute for a discussion with a financial planner such as myself
The following illustrations are designed to help with your financial planning, and are very rough 'rules of thumb' which have consistently worked for us over the last 30 years of providing financial advice to individual clients:
Q. How much Life Assurance is required for each individual?
A. 10 times earnings, less existing covers, e.g. mortgage repayment, or any cover which forms part of a pension plan
Q. How much should I realistically be aiming to contribute to my own Pension?
A. Roughly 10% of gross earnings per annum, or at least starting with 5% and building to 10%.
Q. How much should I try to save, which is to be used as an Emergency Fund?
A. An Emergency Fund should equal 6 months of family expenditure.
Q. What is a sensible limit for borrowing money, to repay a mortgage?
A. Whilst interest rates remain low, i.e. below 6%, then a limit of 3.5 times single earnings/ or 2.75 times joint earnings is considered reasonable. If interest rates rise over 6%, consider reducing these multiples to 3 and 2.5 respectively.
The following graph sets out to identify increasing financial awareness as one gets older, to say the 6th age, then in 7th age a reducing financial awareness or indeed interest.
