I’ve worked with nearly 60 women on a one-on-one basis, and nearly 100% of them were spending more than they made on a monthly basis. Spending more than you make can mean a few things. It means you aren’t able to control yourself. It means you may not realize you’re overspending. It means determining if your income is enough for your situation.

income is enough

Your income may be more than enough to cover your bills and expenses, but the excessive discretionary spending is making you think otherwise. On the contrary, your income may not be enough for your bills and expenses, and in that case, you’ll need to do some damage control. I’m walking you through the proper steps to tell if your income is enough for your living situation.

Is Your Income Enough for Your Situation?

There are a few levels to determine if your income is enough for your situation. Your “situation” could mean a few things. At the very basic level, your income needs to cover your bills and living expenses (the necessities only).

Then, it should cover minimum debt payments and minimal savings. After that, it should cover variable and minimal discretionary spending. Lastly, it should cover retirement savings, extra debt payments and more savings.

Step 1: What income are you working with?

Before you can determine if your income is enough for each levels of your situation, you need to know what your income actually is. When I work with clients, I preach only factoring in income that is consistent and received regularly. This could be things like a paycheck, child support, steady business income, etc. Anything that is not consistent should be left out.

Add up everything you take home on a monthly basis, that is consistent. Knowing that number will help you determine if it is enough for your situation. This number will be critical as we go through the levels of your situation.

Step 2: Add up your necessary bills and living expenses

Now, we need to determine what your expenses and spending looks like. Let’s start by making a list of all of your necessary bills and expenses. This would include things like rent/mortgage, utility bills, minimum grocery costs, gas, car payment, childcare, and so on.

This is where people can get tripped up. Give each item on the list some thought. Make sure it is truly a necessity for you and your family to live. Anything that is not a necessity should not be accounted for here (but will be accounted for later). We can all convince ourselves we need something, so try to take an unbiased approach.

Add all of the costs of each of the expenses on this list up and get a total for the month.

  • Does your income cover this?
    • If yes, move on
    • If no, your income is not enough. At minimum, your income must cover all of your life’s necessities.
get cheat sheet
Step 3: Next, factor in minimum debt payments and minimal savings

Moving on to the next step, you’ll want to add up all of your minimum debt payments and minimal savings. Minimum debt payments should include all of the minimum payments on your credit cards, student loans, personal loans, and any other debt. Nothing extra, just the monthly minimum.

Add all of the monthly minimum debt payments up to get a total.

Determining minimal savings is also a tough spot. A safe number I would recommend is 3-5% of your income, at least to start with. Whatever this number is for the month, add it to the monthly minimum debt payments.

  • Does your income cover this?
    • If yes, move on
    • If no, your income is not Your income needs to cover minimum debt payments (as you are responsible for them) and minimal savings (as without a savings, you could hurt your situation if something were to come up).
Step 4: Next, factor in discretionary spending

I never EVER recommend my clients (or anyone) leave out fun spending. Life is too short to be too rigid with yourself and your finances. If you don’t believe me, read 5 Reasons Why You need to Budget for Fun. Now, that doesn’t mean you can go spending whatever you want on things you don’t need. It means you should spend on fun in moderation.

As you are thinking about what you should be spending on fun and discretionary spending, be realistic. You can start by looking at past months to see what you have spent on fun and discretionary items. Usually, the number is much bigger than people expect. Based on all of your other bills and expenses, ask yourself what a realistic number is for you to spend on fun.

  • Does your income cover this?
    • If yes, move on
    • If no, your income MAY NOT be enough. Maybe the number you gave yourself wasn’t very realistic. Does your income cover something for fun? If so, then that is the number you can spend on fun. If it can’t cover any fun spending, your income isn’t enough for your situation. Not being able to do things you enjoy can lead to splurging, which will hurt you in the future.
Step 5: Lastly, factor in saving for retirement, extra debt payments and more savings

The final step in determining if your income is enough for your situation is to add up a monthly total for saving for retirement, making extra debts to pay them off faster and saving up to 10% of your income.

Keep in mind that retirement savings may come out of your paycheck if you have a 401k. This could slightly alter what your take home pay is. Not sure how much to factor in? A good rule of thumb is to contribute what your employer will match. If you don’t have a 401k, factor in retirement savings in an IRA. Start with 5% and see if you can get up to 10-15%.

You’ll want to determine a safe amount you can apply as extra debt payments. Only paying the minimum will keep you paying them down for life. The interest rates are too high. Even as little as an extra $50 each month can make a difference.

The final number to factor in is a larger monthly savings amount. The goal should be to save 10% of your income each month.

  • Does your income cover this?
    • If yes, your income is enough for your situation
    • If no, your income MAY NOT be enough. Extra savings and debt payments aren’t a necessity for the short term. However, your goal should be to work towards getting to a place where you can afford them.

What if your income is not enough?

After all that, what if you determine your income truly isn’t enough for your situation? You only have one option. You must increase your income, otherwise you will fall further and further behind. There are plenty of ways you can make more money. Here are a few articles to help:

8 Side Jobs to Boost Cash Flow

7 Passive Income Ideas to Try

8 Easy Ways to Make Extra Money

You can also schedule a free consultation with me to help pinpoint areas of opportunities in your income and expenses!

budget categories

I hope this article helped you take a good and deep look at your financial situation. Ensuring that your income covers all of your spending is critical for financial success. Is your income enough for your situation? What changes can you make after this exercise? Post a comment below to share!

-Raya
The CGS Team

Raya ReavesFounder; Financial Consultant