And why limit yourself to the 50?
- It gives you flexibility. Your income could drop by half and you’d still be able to pay your essential bills. When your must-haves eat up more of your income, you have less ability to cope with setbacks such as layoffs, reduced work hours or unexpected expenses.
- It helps you figure out what you can and can’t afford. If you’re considering adding a loan payment or other contractual obligation to your overhead, you simply check to see if it would push you over the 50% mark. If not, you can consider adding the payment; if so, you don’t.
- It gives you balance. Limiting your overhead allows you to have money for the pleasures in life, such as dinners out and vacations, without stress. It also allows you to get out of debt and save for your future.