Percentages are Often Meaningless
I posted something like this on my Facebook page a while back. Rather than find it, I've decided to recreate it here.
Let's say that I take home $4000 per month. Let's say my "basic" living expenses for home and car including all operating costs, insurances and whatnot are $2500 leaving me $1500 to live on. Of that I spend $600 on food and clothing, $600 on entertainment and save $300. My entertainment budget is currently 15% of my take home income.
At my annual visit to the financial planner tax person, I'm told that I really ought to cut back on my entertainment expenses so that I can put away more for retirement. A somewhat dramatic one-third cut from current entertainment expenses is suggested. This would amount to 5% of my current income and bring entertainment down to 10% of the total.
Then I had a brilliant idea, I would buy a new car and move to a more expensive home in a more expensive neighborhood so that my baseline living expenses almost double to $4500 per month. I change nothing else except that my former $300 for savings goes to buy food and clothing in more expensive stores. So now, my total living expenses are $6000 per month, for which I dip into the home equity line of credit to cover at the rate of $2000 per month.
The following year I visit my financial planner tax person who is horrified by recent developments! I calmly explain that I did as requested. I have cut my entertainment expenses to 10%.
Why is he/she not impressed??