Do You Make a Living Wage to Cover Your Needs?
- The basic budget ratio can help determine if you are making a living wage.
- You will need to separate your needs from your wants.
Anytime is a good time and opportunity to check your finances and think about how to take your finances to the next level. More commonly, when someone thinks about getting their finances in order, they start with budgeting. There are many different types of budgets, and although some people prefer another method, the key is finding a method that is effective in being a positive financial change on your money journey.
Whether through your chosen budgeting method or some other option, you should be able to ask and answer, "Is my income enough to cover my basic expenses?" Knowing the answer will guide you on the next steps you should take to get on the best financial track.
Add up all of your basic monthly expenses.
These expenses are needed to keep you clothed, fed, and safe. Examples of mandatory costs include:
- Your rent or mortgage payment
- Your utilities
- Your cell phone
- Groceries
- Medications
- Gas for your car
On the contrary, the following expenses should not be part of your mandatory expense list:
- Cable
- Haircuts
- Dining out
- Shopping
Divide your necessary expenses by your take-home pay.
You will want to use the below formula:
Basic Expenses ÷ Monthly Take Home Pay = Basic Budget Ratio
If your Basic Budget Ratio is under 60%
If the answer is .60 or less, you have enough income to cover your necessary expenses. However, your spending on non-essential expenses will likely cause a budgeting problem.
If your Basic Budget Ratio is over 60%
If the answer is more than .60, you need more income to cover your essential expenses.
It will help if you start looking for options to increase your income. Reducing costs will be helpful, but your primary focus should be on making sure you have enough money coming in every month.