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Recently, I pointed you to some typical personal budget allocations at varying income levels i.e. $100,000 p.a.; $250,000 p.a.; and $550,000 p.a. (before tax).
So, I was very interested when I happened upon this chart from Crown Financial Ministries, a Christian organization that helps people with their personal budgets and debt reduction strategies. This chart illustrates their concept of an ‘ideal’ personal budget allocation.
I should point out:
1. This ‘budget’ is after-tax (assume 35% tax rate)
2. Being a religious organization, it (naturally) also assumes tithing (I presume it’s 10% of gross)
3. You can be sure that it represents low-to-average salary levels – given its target audience – so you may want to combine this with other estimates (such as the ones above) for higher income levels.
For most personal finance bloggers this is a way to assess your current budget so that you can make sure that you reign in your spending and save every last dollar.
While this is wise and honorable, I provide these numbers for a totally different purpose: so that you can assess your future budget. This is the budget that you would like to have when you retire.
Use these resources to try and put together the lifestyle that you want to live when you retire – as though you were living it today.
Once you have your Required Annual Expenditure firmly in mind, you will need to account for the inflation that will occur between now and when you do stop work …
… for example, if you think that inflation will only be 4% and you intend to retire in 20 years, you will need to double the income that you anticipated (for 10 years add 50%, and so on).
How will you fund that if you have retired?
By having at least 20 times that saved up on or before the day that you stop work, is how!
Thanks for the link to Crown!
@ Lee – You guys do a great job! Thanks.
I like the idea of estimating your retirement budget allocation, although who knows what the future will hold? A major medical problem would drastically affect things.
I don’t believe there is any one ideal budget allocation- people have different values and their budgets should reflect that or the budget WON’T be followed.
It strikes me that this budget allocation is very non-ideal for almost everyone… posted for irony sake? If you are not retired a 5% investment is far too low, unless you started saving for retirement at age 10, inherited a fortune, or like living on cat food and sleeping under a bridge.
If you are retired putting any % into investment makes no sense either- you are taking all of your income from investments anyway. Why not just leave that 5% invested! Finally, the figures for healthcare, entertainment seem far too low for a retiree.
@ Rick – I agree … that’s why it’s posed as a question AND I provided the three ‘lifestyle’ posts as well as the most important thing: the spreadsheet to calculate your own!