How Much Money You Should SPEND (By EVERY AGE)

What's up, you guys? It's Graham here!

So, about a month ago, I made a video going over exactly how much money you should have saved up by every age and each milestone you should aim to hit by every decade. In that video, quite a few of you were very happy to hear that if you have less than negative $27,000 saved up by the age of 20 years old, then statistically, you're ahead of the average U.S. population for your age.

Wait a second! If you have more than negative $27,000, does that imply more debt, or is it that you have less than negative $27,000 worth of debt because you have less of it? Well, I have no idea. That's why I make YouTube videos!

Anyway, quite a few of you enjoyed that video, so I wanted to step it up a notch. Instead of talking about how much money you should have saved up by every age, let's talk about something a little bit more provocative, and that would be how much money you should spend by every day.

Because, let's face it, we live in a world where we have to spend money, and it's really up to us to decide if we can or cannot afford something. So let's go over everything you need to know about how much money you should really be spending throughout every single category— from housing, transportation, utilities, health insurance, coffee, you name it!

To do that, we're going to be going over what the experts call the 50-30-20 rule for managing your money. After that, I'll give you my thoughts as to how much money you should be spending for everyday items based on how much money you make.

And then, of course, as usual, if you wouldn't mind budgeting the like button until it turns blue for the YouTube algorithm, it really helps me out. The more like buttons get pressed on this channel, the more iced coffee I can afford to drink, which gives me energy to make even more YouTube videos.

Wait a second! Who am I kidding? Just smash it and destroy it and obliterate the like button until it's no more. And then, once that's done, let's begin the video right here. Thank you very much!

When it comes to successfully managing your money and building your wealth so that you're not living paycheck to paycheck, this is probably one of the most widely used rules of thumb out there, and it's called the 50-30-20 rule.

The basics of this are extremely simple for anybody to understand in less than a minute, which is probably why it's so popular today. This is what it is: First, you take your after-tax income, which is obviously the income you have left over after paying your taxes, and you divide that up as follows: 50% of that income should be spent on your needs, or in other words, things you absolutely have to have in order to survive.

This is meant to be your mandatory expenses that you need to pay every single month. So right there, half of your income is already spent on this. Next, 30% of your income should be spent on your wants. These are things you don't need to have, but they're nice to have.

This could include going out to restaurants, shopping for new clothes, going out to the movie theaters, if those ever come back, and so on. These are the things that make life a little bit more fun, but at the end of the day, you don't need to have them, and they're just optional.

Finally, the remaining 20% should be spent on savings. "Spent on savings?" Can you spend your savings if you're saving them anyway? Let's go with it. The remaining 20% should be spent maxing out your retirement accounts, paying down debt, coming up with a six-month emergency fund, or betting it all on call options because you saw a post on Reddit's Wall Street Bets about how purple would be the next big investment.

But how accurate is this 50-30-20 rule really? Is this something you should follow if you want to be wildly rich one day or be able to retire early based on saving 20% of your income? Because I'll be the first to tell you, if you follow this advice, it's going to be nearly impossible to get off the hamster wheel of life and be able to retire early, and here's why.

If you save and invest 20% of your income every single year, and we assume that your investments are generating a 7% return with inflation, it's going to take you 37 and a half years for your investments to grow to a value where you could retire from what's known as the four percent rule.

This is the formula that says you could spend 4% of your portfolio every single year for 30 years while maintaining the exact same lifestyle. Although, let's be real, I don't know about you, but almost 40 years of doing this every single year just to be able to retire doesn't sound like a good money management style to me.

And finally, these categories get wildly absurd the more money you end up making, and all of a sudden, the relative cost of buying something becomes a smaller and smaller percentage of how much money you make.

For example, let's take a look at this perspective: if you make $50,000 a year after taxes, spending 10% of your income on food is $5,000 a year, and that would be reasonable for most people. But if you make $500,000 a year, spending 10% of your income on food is $50,000 a year, and that's absolutely absurd.

So, as you can see, even though this might work for some income brackets, the more money you make, the more this becomes very inaccurate. So let's go over the actual amounts of what you should be spending in every category. I'll go over what the experts recommend, and then I will go over my own recommendations so that that way, you could maximize the value of every dollar and budget correctly.

So let's begin with that needs category. For most of us, housing is the first thing that comes to mind. When it comes to this, most experts recommend that housing should not exceed one-third of your income. So, if your rent is $1,500 a month, you should be making $4,500 a month; or, if you calculate this backwards, for every $3,000 a month that you earn, you could spend $1,000 of that on housing.

Now, this is something I partially agree with. As a landlord, I will only rent to people who earn three times the monthly rent, because otherwise, I'm concerned if an unexpected expense comes up, they're not going to have enough money to pay all of their bills. However, as someone who's really into personal finance, I would much rather suggest that for most people, they try to aim for more like 25% of their income on housing at the very most, or if at all possible, more like 20% of their income.

Really, the gist of this is spend as little on housing as you possibly can. I know this might be really difficult to do depending on where you live, and in places like New York, San Francisco, and Los Angeles, it's pretty much impossible if you're making less than $100,000 a year.

But if you can get your housing down by potentially living with roommates, moving to a less expensive area, or renting out a bedroom or two from where you live, I would highly recommend it. Not to mention, you can always spend more money on housing later if you absolutely need to, but saving as much money now up front is going to get you much further ahead if you could do it.

Next, we have to talk about another need for most of us, and that would be our car or transportation cost. Now, the conventional wisdom when it comes to this is that your total cost for transportation should not exceed 15% of your income, and the total price you pay for a car should not exceed 35% of your annual salary.

So, using this metric, if you make $50,000 a year, the most you should spend on a car is $17,500, and the total cost should not add up to more than $7,500 a year for your payments, insurance, gas, repairs, and so on.

I would say for most people who go and buy new cars every few years equivalent to their annual salary, this is pretty good advice. However, I would still caution people against spending that amount of money on a car, especially if you don't absolutely have to. Instead, I much prefer the Dave Ramsey approach when it comes to how much money you should be spending on transportation.

He recommends that your transportation costs not exceed 10% of your annual income. You should never go and buy a new car unless you have a net worth of more than a million dollars. I would go so far to suggest that if you go and buy a car, the cost of the car should not exceed 25% of your annual income.

So, if you're making $50,000 a year, go and spend $12,500 on a new car at the very most that won't go down much in value. Again, this is a maximum, so if you own your car outright, and it's only costing you $200 a month for gas, repairs, maintenance, insurance, and so on, that's great. Keep it that way for as long as you can and just save the difference.

Remember, the more money you make, the more ridiculous it becomes to spend 10% of your income on transportation. But then after that, we've got to talk about food, and the general rule of thumb when it comes to this is that you should not be spending more than 10% to 15% of your income on food.

This I think overall is pretty reasonable. Depending on how much money you make, that means that the person making $40,000 a year after taxes is spending anywhere from $330 to $500 a month on groceries, restaurant food, and so on, which again is reasonable.

However, I personally believe that your food budget should not necessarily go up relative to how much money you make. Like, if you're earning $100,000 a year, spending $1,250 a month on food is absolutely ridiculous. Why would you do that? I would say a better guide here is to spend 10% or $600 a month on food, whichever is less.

Oh sure, if you're making $250,000 a month, going out for happy hour sushi once a week is not going to break the bank if you just barely go over that $600 mark. But just use common sense and don't get carried away on food just because you make more money.

Next, we'll talk about other necessities like health insurance, utilities, and so on. When it comes to this, most professional budgets recommend that you spend another 10% to 15% between the two, which sounds reasonable depending on how much money you make.

However, just like the food budget, your utility and health insurance budget should not be going up the more money you make. Like, your health insurance is not going to magically go up 10 times from when you make $50,000 a year to $500,000 a year.

So here's what I think is reasonable: health insurance could easily be 5% or more of your income. So, anywhere from $200 to $500 a month for a single person, depending on your age, your coverage, and where you live, it's really hard to put a maximum amount to spend here because this is your health we're talking about. But I would say overall we'll round this off to about 5% a year.

Then, as far as utilities go, generally for most people, you're going to be spending anywhere from $50 to $250 a month, depending on where you live and how hot or cold you like to keep your house, or whether or not you do laundry during off-peak electrical hours, which you always should!

So, I would aim to budget about 3% of your income, or $500 to $600 a month at the very most for most people in most circumstances, again, no more than that. Now, this leaves you with 52% of your income at the very minimum leftover to do with whatever you want. And this is where things get good!

To start, I would allocate 10% of your income to literally do whatever you want with. I know this sounds like I've been abducted by an alien and replaced with a deep fake here on YouTube for even suggesting something like this! But seriously, spend 10% of your income on whatever you want, whatever you see fit, as long as it's within reason, makes you happy, and you're not an idiot about it.

If this is money you want to put towards getting a slightly nicer house, then go for it! If this is you going and getting a slightly faster car, then go for it! As long as it does not involve spending money at Starbucks, I think it's important that you're able to spend some money on things that you enjoy.

10% of your income is enough to get it out of your system without totally breaking the bank. I have a feeling the psychological aspect of this is going to make budgeting and planning and saving that much more enjoyable without feeling like you're depriving yourself just for the sake of saving more money.

Think of this one a little bit like your cheat meal, so that you don't just go and save money, save money, save money, and then all of a sudden you go and blow it in one go. This is all okay as long as that does not include any spending at Starbucks because that's a waste of money.

Now, that means you have 42% left over to do something really special with. And you guys know me; if you watch the channel by now, you know what I'm gonna say—smash the like button for the YouTube algorithm! Then save and invest the difference.

That's right, 42% of your income should go right to investments! In this order: first, if you have any high-interest rate debt above 5%, you should use some of this money towards paying that down. But assuming now you don't have any debt or any debt you do have is under 5% interest, then here's what I would do with your money.

The first thing I would do is build up a six-month emergency fund in cash held within a high-interest savings account. This one is pretty self-explanatory, but it's always a good idea to have some cash sitting on the sidelines in case of an emergency or something unexpected comes up.

But once you've done that, the next step should be maxing out your 401(k) up to your employer contribution if this is something they offer. See, sometimes employers will match you dollar for dollar within a 401(k) up to a certain amount, so if this is something that's offered to you, always do this no matter what. It's pretty much free money, so always contribute up to the employer maximum in every situation.

After that, the next $6,000 that you invest should go towards maxing out a Roth IRA. This is a retirement account that lets you contribute post-tax money, and then any profit you make within that account is completely tax-free by the age of 59 and a half. You should always take advantage of this account when you can, and investing $6,000 in this every single year is going to be a really good use of your money.

From there, whatever remaining money you have left over should go towards any sort of taxable account or any investment that will just grow in value over time. That might include using the link down below in the description and getting two free stocks when you deposit $100 on Weeble because one of those stocks could potentially be worth all the way up to $1,400.

So, if you haven't done that yet, you may as well just get your two free stocks in the description and let me know which two free stocks you get! But seriously, investing money like this into stocks, real estate, or index funds is going to be a very good strategy for you to use with anything that's left over.

And even better, at a 42% savings rate, you would easily be able to retire in about 20 years using the 4% rule, which means if you start doing this at 20 years old, you would be able to retire by the age of 40 if that's something you want to do.

But just by following this, a 20-year time frame for retirement is absolutely possible with this budgeting technique, and it's still going to give you a lot of flexibility with this just in case something goes wrong. However, I'm not quite done yet!

Even though we've now budgeted 100% as seen right here, I'll put a cool little graph up right here that I made myself in Photoshop. This spending is not treated equally. See, what most people do is cover all of their expenses first, and then whatever is left over, if anything, is saved.

Although, for this budget to work, we have to reorganize it. Right off the bat, 40% of your after-tax income is going to be saved without even thinking about it right from the very beginning. Really, once you do this, the hardest part is over, and then the rest of the money could be budgeted appropriately.

You might also be wondering about that missing 2%. Well, realistically, no one ever budgets down exactly to the dot each and every month. Most people are just gonna naturally fluctuate about 5% to 10% month over month depending on what expenses come up. So just go ahead and take that 2% as a buffer if you need it.

Some people will need more than this, while others less than this. This is just meant to be a rough guideline. It's also really important to acknowledge and mention that the more money you make, the more these percentages just get out of whack.

So once you begin hitting some of these maximums, you should just get in the habit of investing and saving the difference consistently. Also, I get it—40% is a lot of your income to save. I don't expect this to be an overnight transition for anyone, especially if you're already spending a lot of money.

However, I strongly recommend you begin tracking your expenses, saving your money, and cutting back as needed while still working at the same time to increase your income so that that way, you're able to save more money. Then, over time, a 40% savings rate is going to be a lot more achievable.

By following the 40-10-50 rule, it's going to be way easier to save money long term. You'll be able to achieve financial independence that much faster, and you'll be able to smash the like button for the YouTube algorithm!

So, with that said, you guys, thank you so much for watching. I really appreciate it! As always, make sure to subscribe and hit the notification bell. Also, feel free to add me on Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there.

As on my second channel, The Graham Stefan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that.

Then, like I mentioned, if you want two free stocks, use the link down below in the description, and Weeble is gonna be giving you two free stocks when you deposit $100 on the platform, with one of those stocks potentially worth all the way up to $1,400.

So if you want these two free stocks, use that link down below, and let me know which two free stocks you get. Thank you so much for watching, and until next time!