The most common question that I get on a daily basis is this: How much money should I be spending on _______?
It’s a fair question. So here is the definitive answer in writing. Below you will find the ideal household budget.
But here is what you need to know. If you don’t spend the maximum amount in one category, then you can allocate more money to another category. In other words, let’s say that your household transportation costs are only 5% of your income, then you can feel comfortable to split the “extra” 10% towards other categories. That is exactly how I live the financial life that I want to live. I have very low transportation cost, therefore dining out and housing receive a higher allocation of my income. In addition, I don’t spend much on entertainment, therefore my allocation towards savings is above 10%.
People who fail to operate on this “give and take” basis often find themselves in debt. Many financial households operate on 110% of their income. You just can’t do that. I encourage you to compare your household expenditures to this chart and this philosophy. I would also love to hear your thoughts. Leave a comment on the blog in regards to your favorite trade-out. What one category do you scrimp on so that you can spend more on another?
And if you are a tither, then this budget is based your income after your tithe. In addition, this also excludes your 401(k) savings which usually is taken out of your income prior to it being considered “take-home” pay. Therefore if you save 15% of your gross income towards your 401(k) and another 10% of your take-home pay towards general savings, then you are a rockstar. Check that. A rockstar probably wouldn’t save any money.
The chart is based on take-home (net) pay.
Just a suggestion. Might want to revise this using a different, more varied color scheme, for two reasons: 1) Even on the screen it seems like Housing and Entertainment (blue) and Medical and Transportation (green) are the same shade of the same color. 2) For those (like me) who want to print this out for future reference but don’t have access to a color printer, the color scheme is rendered almost ineffective anyway.
Nice guidelines! I’ve been allocating about the same for housing, savings and groceries/dining, but keeping everything else lower and putting 40% toward paying off my student loans. I’m on my way to being debt-free in a year! I’m just a little excited
The areas we cut down on are clothing and cars. We also could afford a substantially bigger home, but thankfully never fell into that trap.
What we like to do is travel, go out for dinner and give to others.
We like the setup and fortunately, the recent downturn in the economy did not affect us.
I’m going to vote to increase ‘charity’ to 7-10%. Otherwise, love it!
If someone chooses a private school for their children, where should that money come from? What areas do you recommend reducing in order to cover that expense?
I’d like to quibble with Medical. Healthcare costs are rising so fast, and with the advent of high deductible plans (which we have), this is hard to budget! Most people cannot shop around for services! It is a problem. Also, I assume this figure (5%) would not include premiums which are deducted from a paycheck…?
I noticed no income is alloted towards educatiln. Are you assuming that it’s FREE?
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I am having trouble with the budget. How do you make a budget when you don’t work the same hours and your paychecks aren’t the same. And you get paid every two weeks. It seems like the system is set up for people who make more than 9.50 an hour and have a reliable paycheck.
hey miranda … im not expert but i can tell you what worked for me in the past…
I divide my bills into two equal parts … stuff I can pay on the first and stuff I can pay on the 15th … this way you know how much you need to make every two weeks to pay your bills … when i was a waitress I would always use my lowest amount that I normally got and wouldn’t spend my tips until I reached enough to cover the bills that were coming up… you’ll get her taken care of!!
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