What's your real daily allowance?

This might seem like a no-brainer to people who have their finances all figured out, but for people like me that don't really pay that much attention to my bank account other than to make sure there's still money in there, I found this to be a great exercise.

What is your total income, broken down by day?

Depending on if you get your paychecks weekly, bi-weekly, twice a month on specific days, or monthly, you'll have to calculate this differently.  If your income is irregular, that might also make it more difficult to determine.  I get paid bi-weekly, every other Friday, so I just divided my last paycheck by 14 to get my daily income.

What are your regular expenses?

Every month I have to pay the same amount for my mortgage and my condo dues, so rather than have to worry about them too much I decided to subtract them from my daily allowance.  Just to be anal about it I multiplied them both by twelve and then divided that amount by 365 to get my amortized per-day amount for regular expenses.  I did the same for property tax.  This was an interesting exercise in itself because you will essentially find out how much you're paying every day for your living situation.  I'm paying a lot more than I would've guessed.  I could save money by living in a cheap hotel.  People would make my bed and clean my bathroom for me.  But I guess there are trade-offs as well.

How much do you want to save per month?

I have a new goal to live on 43 Things to live within 80% of my income.  There's a bit of flexibility about what that actually means, so here's my definition: I'd like to live off of 80% of my post-tax income, after 401K, but before regular expenses.  To get the 20% that I'll need to subtract from my daily income, I took the total daily income before removing regular expenses and divided that by five.  That number is the 20% of my income that I'd like to save each day.

Calculate your daily allowance

Subtract your daily regular expenses and daily savings from your daily income to get your daily allowance.  Knowing exactly how much I could spend, on average, per day was very satisfying because it's a real number that you can keep in mind on a daily basis.  If you go over one day, it might help you realize that you need to spend a few days going under.

If you give this a try, let me know how it goes.  Did you do anything differently?  Was the final number more or less than you had hoped it to be?

Comments

[maggie]

This is an interesting exercise because it puts things in a different perspective. I am only saving 10% of my net paycheck (after 401k and all that) and 20% feels impossible. But according to my calculations it would only take $7 more per day to get there. That doesn't seem too bad, except that I already skip all the coffee and bought lunches and daily splurges the experts tell you to get rid of so you can save more easily!

[Carrick]

I hadn't thought to subtract fixed monthly expenses (amortized per day) from daily income. That's a cool idea. Changes the equation considerably and lends greater weight to those fixed costs. It makes you stand up and take notice when your daily income appears to go down.

[Carrick]

I think it's better to try to save 20% of your take-home income after deducting regular expenses rather than before. OK, for one thing, it will be easier to do this. But secondly, how many of us are likely to be able to change significantly those regular expenses? They are usually things like loan payments, insurance, and tuition. On a daily basis, these are not things you can decide to either buy or not. So I've decided to try to live on 80% of what I bring home after deducting my regular expenses.

[mary]

I'm a freelancer, so I have a super irregular income. I've tried to figure out what my monthly income is but I just haven't been able to... I know the number I put down on my 1040 last year, but that's a) not the number for this year and b) doesn't take taxes into account... I want to live on the money I can count on, but I've never sat down in front of Quicken and taken stock. If I do the spreadsheet thing for a month I'll have a clearer idea of how I spend my money and I can go in and take another look at my invoices for the year with that in mind...