Financial Planning: Managing Expenses and Income Effectively

Financial stability requires reducing expenses and increasing income for a healthier lifestyle footprint.

### Navigating Personal Finances: Understanding the 238 Rule and Lifestyle Adjustments
* 💰 Go Cubs 1989 posed a spicy question about managing his finances, revealing that he gives **10%**, saves **25%**, allocates **25% for a mortgage**, pays **20% in taxes**, and has car payments totaling **16% of his income**.
* 📉 The discussion highlighted that the **238 rule** dictates that car payments should not exceed **8% of monthly gross income**, meaning Go Cubs is currently **overspending on car payments**.
* 🏡 The ideal housing cost should be **below 25% of income**, and aiming for around **20%** could provide financial relief.
* 🔄 To improve his financial situation, Go Cubs should consider **reducing expenses in other areas** or **increasing his income** to ensure that his living costs take up a **smaller percentage of his total earnings**.
* 📊 Resources available at money.com can help individuals understand the implications of a **25% savings goal**, especially for those in their **20s and 30s**.
* 🌱 The speaker emphasizes that while achieving the **aspirational 25% savings rate** is commendable, it is crucial to **adapt spending habits as income grows over time**.
* 💪 As individuals progress into their 40s, they often find that their housing expenses become a **smaller portion of their income**, easing financial pressures.
* 📈 Overall, the conversation underscores the **importance of understanding financial metrics** and **adjusting lifestyle choices** to navigate personal finance effectively **without regrets**.

[Music] um do you want a spicy question or a popular question next? Choose Your Own Adventure. I mean, it's spicy, right? Throw a little hot sauce on there. Go in Nashville. All right, Go Cubs 1989 has a question, and he says, Spicy question alert. I give 10%, save 25%, 25% for my mortgage, pay 20% in taxes, and have two car payments of 16% per the 238 rule. Are you saying I have to figure out how to live on 4% of my income? All right, read them to me a little bit slower. Uh, pretend like I don't write real fast. I have give 10%, save. You should check this math. That's true. Taxes 20%. Um, car 16%. Two car payments, which I know you're going to talk about. Um, did you get that? He gives 10%, saves 25%, 25% for mortgage. 25% for mortgage, yes. That's the one I think you didn't have. Well, you've done one thing interesting. Go Cubs. Um.

you chose, and this is fine to go at the top end of all of our metrics. Uh, yes, we say that when it comes to your mortgage, your total housing cannot exceed 25%. What we're not saying is that you should shoot for maxing that out at 25%. What we'd love to see is if the housing cost was some number less than that. Maybe it's 20%, maybe it's 21%, maybe it's 15%. That'll give you a little bit of reprieve there. The other thing that you did, and this is the biggest error that I see, is that you said, Hey, I've got 16% going to car payments. That is not the way the 238 rule works. The way the 238 works is you have to put 20% down when you buy a car. You cannot finance for any more than 3 years or 36 months, and all of your car payments combined, whether you have 1, 2, 3, 5, 10, 12 cars, cannot exceed 8% of your monthly gross income.

so I would argue if you're at 16% for your cars, you have doubled that. But since you use all the numbers, I'm going to assume this is a hypothetical. So let's back that down to eight. We just gave you 8% back, so now you have 12% that you theoretically could live on. This is not any different than folks who are in the messy middle. This is not any different than folks who feel like they have a thousand different things pulling them in a thousand different directions. I think what you have to figure out, what you have to really lay into, is how can I get my lifestyle footprint as small as possible. So if I am in that 25% mortgage, if I'm thinking about buying a house, maybe I don't want to go to 25%, maybe it should go to 20%. Are there other areas that I can squeeze and get my footprint down? Or if I can't spend less, if I can't get my numbers down, how do I then think about getting my income up so that these

things that are expenses that are pulling on me are a smaller percentage of the total gross income that I'm working with. I love that the spiciness was that this was kind of a got you, but I actually love because it shows how we've actually taken into account and done the nerdy stuff. And let's go through a few things. If you go to money.com resources, we actually, and I know it's not titled this, but this is what I call it every time, and we got to just change the title of it. What will 25% do for you? We have a resource, you know, find out how much you need to save. I think that's what it's actually titled. And we've put it up on the screen right now. 25% is aspirational for people in their 20s. I know that. I mean, but I want you to start somewhere. I don't care. And what I love about that illustration, it shows 10% is pretty damn good in your early 20s. 15% is

outstanding in your late 20s. It's really, by the time you get in your 30s, you should be really trying to get into that 25% of the mortgage. I think about myself; there are seasons in my life where I maxed out that 25% of housing, but now look at where I am, and my housing is almost like a rounding error in my life. Um, because my house is pretty much paid off. Um, if you look at my living expenses or the housing expenses compared to what I'm making, income, I mean, we're not even close to three, four, even 5%. So, I think that there's some actual flex for my super young um, people who are watching this, my financial mutants. You are in the aspirational side on the savings rate, rate of the 25%. You're probably not going to have a mortgage at that. So, there going to give you some squeeze of the balloon or play with the numbers and forgo cobs once you B's right. The messy middle is the

hard part that 30s because I'm kind of hoping you are in the 25%. I'm also know you're probably going to need to buy the house in that phase so that's why you are going to get squeezed where you're both short on time. You're short on money but it's still your money is so valuable and go to the wealth multiplier at money.com resources to see why we say this works but that is hard part but then once you get into your 40s this gets so much easier because your income is now reaching Peak earning potential. Your housing is set and it's getting to be a smaller and smaller cost of your total total expenses as a percentage and it all kind of fixes itself so go Cubs you you did a great job of trying to to to lock it down but I think I've just showed you there's enough play in the system. We've lived enough life. We've worked with enough wealthy people. We know how this all kind of is going to play out for you and we tried to equip

you with all the tools so that you can navigate it well and not have regrets once you reach each step in this journey.

"Can I Live on 4% of My Income?"

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Managing Income and Expenses: A Spicy Question

A listener questions the feasibility of living on 4% of their income after allocating funds for giving, saving, taxes, mortgage, and car payments.

The speaker emphasizes that the mortgage should ideally be less than 25% of income and highlights the common mistake of allocating 16% to car payments.

They clarify the correct application of the 238 rule for car financing, stating that total car payments should not exceed 8% of monthly gross income.

Reducing your lifestyle footprint is key to managing expenses and income.

Consider lowering your mortgage percentage and finding other areas to squeeze costs.

If cutting expenses isn't possible, focus on increasing your income to make expenses a smaller percentage of your total gross income.

Navigating Housing Costs in Your 20s and 30s

In your late 20s, aim to keep housing expenses at 25% of your income, with the goal of reducing this percentage as you get older.

The transition to your 30s can be challenging, as you'll likely need to buy a house while managing limited time and money.

However, by your 40s, your income should peak, and housing costs will become a smaller portion of your total expenses, making financial stability easier to achieve.

Having the right tools is essential for successfully navigating your journey.

Being prepared at each step can help you avoid regrets.

It's important to stay focused and make informed decisions along the way.