Guidelines for Your Budget


Ever wonder what the guidelines are for a budget?  What percentage of income should be allocated for each monthly expense?  Here are some suggestions from financial professionals:

Savings / Investment                           5% – 10%
Housing                                                       20% – 35%
Utilities / Phone                                     3% – 7%
Food                                                              15% – 20%
Transportation                                        6% – 20%
Medical / Dental / Insurance           2% – 8%
Clothing                                                       2% – 4%
Debts / Loans                                            15% – 20%
Personal / Kids                                         12% – 15%
Entertainment                                         10% – 15%
Pets / Miscellaneous                             0% – 10%

There are ranges because some people may spend more in one category and less in another.  How much you spend could be influenced by your needs, location, level of income, lifestyle, etc.  Just remember you want to be accurate!  Don’t just guess your percentages.  If you estimate that you spend 4% on clothing but you really spend 15%, you’re going to face many months of wondering why you can’t pay your bills.

To see how your own spending lines up with the percentage guidelines, do the following:

1. Assign each monthly expense to a category listed above
Example: Student Loans and Credit Cards → Debts

2. Calculate the total expense for each individual category
Example: Student Loans ($300) + Credit Cards ($100) = Debts ($400)

3. Using your total monthly income, calculate your own percentage for each category
Example: (Debts x 100) / Total Monthly Income = Percentage
(400 x 100) / 3,000 = 13.3%

4. See how your total compares with the suggestions above
Example: 13.3% = 15% – 20%

You may be surprised by the amount of income you spend on various types of expenses.  The preceding guidelines are recommended percentages, so don’t be overly concerned if your percentages are different, especially if your income is either very high or very low.  Also remember that some percentages may not change – even if you have a larger income; for example, just because you have twice the income of someone else, it doesn’t necessarily mean you spend twice as much on food.

Other factors to consider are preference and importance.  For example, say you spend 10% on clothing, but you spend less than 5% on transportation because you walk everywhere.  In this case, you’ve exceeded the percentage guidelines in the clothing category, but you’re balancing out with the low transportation percentage.  Now, if you’re over the percentages in most categories, than you should consider changing some things because that could mean you’re burying yourself in debt.

Once you figure out where you currently stand financially, you can see if changes need to be made.  For example, say it’s hard for you to pay the rent each month, and after you calculate the guidelines, you see that you’re spending more on personal items than you thought.  The result?  You can adjust your spending habits to cut down on personal items, so you can put that extra money towards keeping a roof over your head.

Want to make the whole process easier?  Ask your Money Coach about the spending plan worksheet, which is easy to use and removes the difficulty of adding, subtracting, and doing the hard work.

Better yet!  Use Wallet, our online money management tool.  Wallet lets you create budgets, see all your financial accounts and activity in one place, and provides alerts for things like overspending, low account balances and due dates for bills.

Want to maximize your income and make the most of a great budget?  Your Money Coach can help you categorize, calculate, and adjust when necessary, so your budget is accurate and reflects your financial goals.  For more guidance and resources, call your Money Coach today at 888-724-2326.