Budget Percentage Guidelines for Your Living Expenses
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One of the best ways to be successful with money is to know where it goes each month. Many people fall into financial trouble but don’t understand why. These budget percentage guidelines will help you manage your finances and gain more confidence in your financial situation.
Creating a budget actually gives you freedom. A budget allows you to tailor your current spending practices as you see fit. It helps you adjust them to manage your money according to your financial goals.
Table of Contents
Monthly Budget Percentages by Category
Here are some guidelines that will help you make your budget. Your budgeting percentages may vary from these suggestions due to the size of your family. The area you live in (the cost of living varies from city to city) and your financial goals will also impact your decisions.
Remember that it’s essential to tailor your budget to fit your family’s needs and lifestyle.
| Category | % of Take-Home Pay |
|---|---|
| Giving | 10 – 15% |
| Medical | 5 – 10% |
| Housing | 25 – 35% |
| Transportation | 10 – 15% |
| Savings | 10 – 15% |
| Food | 10 – 15% |
| Utilities | 5 – 10% |
| Insurance | 10 – 20% |
| Recreation | 5 – 10% |
| Clothing | 2 – 5% |
| Personal | 5 – 10% |
Why Following These Budget Percentages Can Help
My family and I used to be saddled with over $60,000 in consumer debt. In our particular case, a simple lack of budgeting and not tracking spending got us into that debt. We couldn’t figure out why we were in the hole each month.
After all, we weren’t making large purchases. We were only buying small daily items. The problem was that I wasn’t tracking our spending. Instead, I made an estimated budget each month and assumed we followed the numbers.
When we decided to add up our previous annual spending, we were floored by the results. We assumed we were spending $600 a month or so on groceries. In reality, we were spending about $900 a month. We assumed we were spending about $100 a month on eating out.
In reality, we were spending $275 a month. So, a lack of budgeting and not tracking our spending significantly impacted our financial situation, and it wasn’t a good one. The reality hit us hard. I know money is important, but because of that mistake, we’re still working to pay off the debt we accrued from not budgeting.
Track Household Spending as a Team
It is important to use a budget and track spending together as a team. Don’t just use one or the other as you plan your monthly spending. If you create a budget without monitoring spending, you’ll have no idea if you’re staying within the budget allotted for each category.
This can be especially challenging in certain spending areas. Groceries, entertainment, and restaurant expenses are the three areas we struggled with the most. What if you track your spending without setting a dollar amount goal for each category? If so, you can easily spend more than you would like to in one or several categories.
With a preset budget, you have a number to aim for to help ensure you’re trying to control spending. With controlled spending, you have more money toward your financial goals. Whether those goals are saving money for a house, paying off debt, or working toward financial freedom, this strategy will work for you.
Working on and living within a budget and tracking your spending may initially seem restrictive. However, I’d be willing to bet that the excitement over the savings you gain by having a plan for your money will set in fast.
It will far outweigh any pre-budget sense of restriction you might feel before you start using these powerful financial tools. So, are you ready to give it a try? Feel free to tweak the suggested percentages to fit your spending goals. Just make sure that your percentages add up to 100% each month.
A “zero-based” budget ensures that every dollar has a “job” and that no money is left unaccounted for. Unaccounted money often means wasted money.
Consider Using Cash For Monthly Spending
Another personal finance tool that may help you stick to your budget is the cash envelope system. Money is easy to waste, especially in today’s plastic-driven, app-driven virtual banking society.
When using credit or debit cards, you don’t see the money leave your hand as you make your purchase. So it’s very easy to forget that it’s the same amount you work so hard for each week. Instead, it’s only a line on your digital bank statement.
Today’s banking technology means that spending a little bit of money each day is much easier. However, at the end of the month, that “little bit” adds up to a lot of your paycheck. This reality leaves many people wondering where their money disappears each month. In the process, they incorrectly assume that they don’t earn enough to “make it.”
Try using a cash envelope system for fluid expenses. Use it for groceries, entertainment, meals, and other flexible spending categories. This will help you ensure you’re not spending over the allotted amount in your budget.
Why? You commit to using only the money in the envelope for those expenses. Once the money is gone, you’re finished spending in that category for the month.
Setting New Monthly Budget Percentages
One way to avoid the pitfalls of “disappearing” money is to set new monthly budget percentages for each spending category. Different months often bring different budgeting needs.
For instance, you might have a memorable trip to the opera one month that you wouldn’t usually take. Work to determine at the start of each month how much money you’ll spend in each category.
After that, track your spending to ensure you stick to your budget. By doing so, you stand a much better chance of ensuring that your earnings go where you truly want them to each month.
You also help eliminate the amount of money that “disappears” into the black hole of spending. Knowing that your numbers might change as you get accustomed to using percentages to plan your budget. You’ll likely find yourself tweaking your percentage amounts to fit your monetary needs and goals.
Tweak Your Budget Regularly
Keep tweaking your budget each month until you find a system that works well for you or your family. Doing so is a vital part of a successful financial plan. No person/family is the same as another.
Your budget will not work well if you base it on someone else’s budget. Also, your spending in each category may change monthly depending on what bills are due.
For example, car tabs are only due once a year. This means you’ll likely have a month when you spend more on auto maintenance to cover auto tab costs. Dave Ramsey recommends calculating your annual expenses in specific fluid budget categories.
Do this for categories such as auto maintenance, and divide that number by twelve. Then save the necessary amount of cash each month. Save the money in your cash envelope for that category or in a separate savings account. That way, when the bigger expense months arrive, you’ve already got the cash set aside.
It doesn’t matter which method you choose, but choose something. Analyzing your spending and budgeting categories each month is vital to budgeting success. You’ll want to see if you need to make changes to better suit your financial situation.
Budget Percentage Guidelines – Summary
Learning to use budget percentages to maximize the success of your financial budget is an important step. It’s a vital part of successful money management and wealth-building. Use this powerful tool to help you reach your financial dreams and goals.
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