The field of economics has been deeply explored, but a very important subset of it, the one that will effect your day-to-day life more than any other economic field, is Personal Finance. The Sensible Saver blog will seek to deeply define all the theories and laws of Personal Finance and turn the subject from simply a "good idea", into a science.

Sunday, September 04, 2005

Splurgable Income

The biggest disappointment I get when I read other personal finance sites is their insistence upon sticking to a golden rule. Often times, this golden rule is "save 10% of your income", or some derivative of this. However, this doesn't always tell you enough. 10% where? In retirement or normal savings? Another thing that bugs me about other sites is that they make you feel guilty for spending money. I've read one book that suggested that everyone give up Starbucks, as the money spent on a mocha latte could be funding a future retirement.

The Sensible Saver outlines exactly where to put your money, but even more importantly, also lets you know it's ok to spend money. After all, why earn money if you can't spend it? You shouldn't feel guilty by eating out every once in a while. There's no reason to stress about buying some new clothes. The Sensible Saver knows exactly how much money they can spend, the so-called "fun money", that they have every month.

The Sensible Saver defines a new term - "Splurgable Income". This term may sound funny, but it stresses exactly what it is - money you can spend on anything you want. In terms of personal finance, Splurgable Income can be thought of the amount of money that can be spent in the near term without sacrificing medium and long term savings goals. The more fun way to think about it though, is to think of it as the money to fund your own entertainment - whether that entertainment comes from buying clothes, eating out, watching movies, partying, or short weekend trips, you should be fully comfortable that every month you have an allotted amount of money that is designated for fun.

How much money each month do you get to spend as part of the Splurgable Income? Well, the answer will come as you fill out the Budget Tool, but as a preliminary peek, Splurgable Income = Gross Income - Taxes - Retirement Savings - Voluntary Savings - Recurring Bills. (The Personal Finance equation will be discussed in more detail in future posts). The surprising thing to most people is that the average amount of Splurgable Income in the 22-30 year old age bracket is 32% of your Gross Income. That's right - you can spend almost 1/3 of your gross income every month and still be setting yourself up for a wealthy future.


At 3:29 PM, Blogger Nicholas Parnell said...

I like this post and have to agree with your way of thinking.

Please visit my blog, Becoming a Successful Entrepreneur when you get a chance.


Post a Comment

<< Home