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Pie isn’t just delicious; it’s a useful way to think about your money. By dividing your take-home pay into slices for essentials, discretionary spending, and savings, you can see where your money goes and whether you’re on track with your goals.
Know your pie. Understanding your income and where you spend it is the first step to saving. Track three main slices:
– Essential spending: necessities like housing, food, transportation, and anything you need to keep working. If you live in a costly city, this slice will naturally be larger.
– Discretionary spending: non-essentials such as streaming services, coffee, and entertainment. This slice is for lifestyle and fun.
– Saving: money set aside for emergencies, retirement, education, a down payment, or other goals. You can break this into smaller savings buckets if you like.
You can also add an optional fourth slice for extra debt payments if you’re focused on eliminating balances.
You don’t have to build a strict budget to start—just add up what you spend in each category and divide by your total take-home pay to get the percentage of your pie each slice represents.
Example: If your take-home pay is $5,000 per month and your essentials cost $2,300, that’s 46% for essentials (2,300 ÷ 5,000 = 0.46). If you save $1,000 per month, that’s 20% for savings. Spending $1,700 on discretionary items equals 34%. If the slices add up to more than 100%, you’re overspending and need to make changes. Carrying unpaid credit card balances at the end of the month means you’re spending beyond your income and should decide whether to live with debt or aim for financial security.
Targets to aim for:
– Essentials: ideally no more than 50% of income. Within that, housing should be about 30%, leaving roughly 20% for other essentials like car expenses, insurance, and utilities. If you have heavy loan payments, essentials may need to rise to 60% until debt is under control.
– Savings: at least 10% of income is the minimum. Better if it’s 20–30%. Once you have an emergency fund covering about six months of expenses, you can shift some savings toward other goals or debt repayment.
– Debt payoff: if you’re highly in debt, consider dedicating an extra 10–20% of income to extra payments.
– Discretionary: whatever remains after essentials, savings, and debt payments—your money for enjoyment.
Examples in practice:
1) Lilly, a student, takes home $1,500 a month. Her essentials (rent $500, utilities $50, gas $50, student loans $300) total $900, or 60%. She saves $300 (emergency $100, vacation $50, retirement $150), which is 20%. That leaves $300, or 20%, for discretionary spending. Lilly could cut discretionary by $150 and use that to pay down student loans faster, creating a 10% debt-payoff slice.
2) Mark, who lives with his parents, takes home $3,500 a month. Essentials (car payment and insurance $500, rent $500) total $1,000, or 28%. He saves $1,100 (retirement $300, emergency $300, house down payment $500), or 31%. With only 59% of income used, he’s in a strong position to buy a home once he watches for additional costs.
Spend a few minutes mapping your income and expenses into a pie. Seeing the slices clearly will help you make better choices and move toward greater financial security and peace of mind.
What does your income-and-expenses pie look like?
