TSL stands for Taxes, Savings, Life, and it’s an actionable and easy-to-understand way for how to budget your income and build up your savings. Essentially, with this plan, you will divide your gross income, meaning before anything is deducted, into 30% taxes, 20% savings, and 50% life.
Let’s break it down.
How to Budget Your Income Starting Today
Taxes: 30 percent
We all know that there are very few guarantees in life, and two of them are death and taxes. Before you start spending money, make sure you’re putting away enough money for Uncle Sam so you don’t get an unpleasant surprise come tax season. I suggest 30%, but if your family falls into a higher tax bracket, it’ll likely cost you more, so budget accordingly. Remember all the taxes that you have to pay: Federal Tax, Social Security Tax and Medicare (FICA), state tax, property tax, etc.
Savings: 20 percent
This is where that study comes into play. When building your financial plan, it’s important to create an emergency savings reserve. I recommend that people have enough cash in this account to pay for six months’ worth of your fixed expenses in the case of job loss or a catastrophic medical bill.
Twenty percent is a significant number, but if you’re not sure you can commit to this high percentage immediately, then commit to building towards it. Rome wasn’t built in a day, and your savings won’t be either. Also, remember that there are many tax-advantaged ways to save like in a 401(k), 403(b) or SEP IRA. Reducing your tax bill and creating your nest egg for a comfortable retirement sounds like a win-win to me.
Life: 50 percent
Smart budgeting doesn’t have to mean eating noodles out of Styrofoam cups every day, but it does mean spending within your means. Set your spending limit for food, shelter, transportation, insurance, kid-related costs, entertainment, etc. all at or below 50% of your gross income.
If you have the fortitude to accomplish T and S, then you can look at the next 50% you spend on everything else in Life as guilt free – because you’ve already tackled the mastered the two most difficult steps in TSL.
If you’re saying to yourself right now, “That’s just not possible. I’ve got bills to pay and 50% to live on won’t cut it!” then it’s more than likely time for you to try Economic Shutdown. Learn exactly what you consider a necessity versus a luxury. Do you really use all 2,689 channels that your premium cable package offers? Do you really need to eat out for lunch or dinner a dozen (or more) times a month? Cut the fat from your budget until you fit within that 50% spending range.
This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
