Determining how much you should be spending on each budget category can get confusing and depend on your income.
When you break it down by percentages, it can be easier to know if you are overspending on one category.
The percentages can also change depending on your financial goals.
If you are trying to pay off debt fast, you may need to reduce some of these categories in order to send more toward your debt.
In this post you will learn:
- Budget Categories to budget for
- What percentage of your budget those categories should be
- Dave Ramsey’s recommended budget percentages
- How to determine your budget percentages
***Keep in mind that these percentages are AFTER taxes and deductions from your income. This is ONLY based on your take home pay.
If you are unsure how to start your budget, grab the Budgeting for Beginners: A Step-by-Step Guide here:
Overall Budget Categories
When making a zero-based budget, you may have a lot of different categories just so you can keep all of your expenses accounted for. However, all those little categories typically fall into more general categories.
Also check out this list of 100+ budget categories.
The overall budget categories include:
- House costs– rent/mortgage, maintenance fees, taxes, and HOA fees
- Food– groceries, fast food, and eating out
- Transportation– all costs including car payment, taxes, public transportation, maintenance and storage/parking fees.
- Personal Spending– clothing, hair and nails, decor, massages,
- Utilities– power, water, sewer, trash, internet, and phone
- Giving- this includes tithing or giving to charities
- Savings– saving for emergencies and retirement
- Entertainment– anything you do for fun, including kids sports and activities, gym memberships, concerts, and vacation
- Healthcare– includes everything except your insurance premiums, your copays, medications, and doctor bills
- Insurance– health insurance, vehicles, housing, life, and disability (you can include house and vehicle insurance in the other categories)
- Miscellaneous– this category is for little things you forgot or that don’t fit into another category. This can include your buffer for your checking account
Some people include house and vehicle insurance in those main categories. It is your preference on how you want to calculate it.
For me, my house insurance is covered in my mortgage payment, so it is included in housing costs.
These categories are very broad and can be broken down even further for your personal needs.
The more you break it down the easier it will be to stick to because you will remember a lot of little things that you often forget.
Recommended Household Budget Percentages
There are general recommended household budget percentages and there are also Dave Ramsey budget percentages.
It’s important to keep in mind that when it comes to your budget and percentages, that it may not be exact.
It’s also important to not stress about the percentages month to month. In the grand scheme of things, it is a small detail in your big plan.
If you are doing a zero-based budget month-to-month and sticking to it, that is the most important factor for your financial success, not percentages.
If you have no clue what a zero-based budget even is, start with this Budgeting for Beginners: A Step-by-Step Guide.
What is good about determining your percentages is that you can see if a category is way out of line and needs to be adjusted.
It can help you make adjusts if needed in your spending habits.
General Recommended Budget Percentages:
In general the recommended amounts for certain categories are:
- Housing costs: 25-30%
- Food: 10-20%
- Transportation: 15-20%
- Giving: 10%
- Insurance: 3-5%
- Personal & Entertainment: 10-15%
- Utilities: 5%
- Healthcare: 3-5%
- Savings: 5-10%
- Debt: 5-15%
Remember these are ranges and if you are on the higher end for each category, it will be over 100%. You will have to make adjustments in your budget if that is the case.
Dave Ramsey Recommended Budget Percentages:
Dave Ramsey’s baby steps have helped millions of people pay off their debt by following a simple plan.
The first thing to do before even starting the baby steps is to but your budget together so you have make your plan.
With his plan, he has his own budget categories and percentages that are slightly different than the general percentages.
Dave Ramsey’s budget percentages and categories are:
- Housing costs: 25%
- Food: 10-15%
- Giving: 10%
- Saving: 10%
- Utilities: 5-10%
- Transportation: 10%
- Health: 5-10%
- Insurance: 10-25%
- Recreation: 5-10%
- Personal Spending: 5-10%
- Misc: 5-10%
What you will notice is that they are ranges, so you have some leeway in your budget. It is not a hard and fast rules for percentages either.
If your housing costs are really 28-30% that doesn’t mean you should move. However, if your housing costs are 50% then you should consider your options about lowering costs.
Your budget is personal but if you are looking for ways to cut spending, this is a start.
If you only make $2000 a month and your personal spending category is taking up 20% of that, then you need to adjust your spending habits.
The most important thing about budgeting is being intentional with your money and being aware of your spending.
When we are not paying attention to where your money is going, you will overspend and not reach your bigger goals, like paying off your debt.
To get started, grab your Dave Ramsey Budget Forms.
The 50/20/30 way of budgeting focuses on the percentage amounts for needs, savings and debt, and wants.
There are also variations of this system but it’s important to find a way and system that works for you so that you can save and pay off debt.
In a 50/20/30 budget:
- 50% goes toward needs
- 20% goes towards savings and debt
- 30% goes towards wants
Now, if you have a lot of debt, you may not be able to do these percentages right now. But this can give you an idea if your debt percentage is way too high.
It can also give you a goal to work towards.
Using these budget percentages will make you think about what are wants and needs.
You do not need cable, you want cable.
You do need your medications.
You want to get your nails done every month, you do not need to do that.
You also do not need new clothes every month.
You do not need a yearly vacation to Disney World.
You do need food, shelter, transportation, and clothing.
In order to prioritize your spending, focus on the most important things first.
- Housing Costs -including utilities, insurance and taxes
- Food- the necessities, nothing extra including fast food and eating out
- Transportation- does include car payment, maintenance, taxes and insurance and public transportation. But you do not NEED a car payment or a NEW car.
- Clothing- but a reasonable and NEEDED amount
- Medical costs- including insurance, co-pays and medication, also includes mental health care!
- Personal spending
- TV/cable and smartphones
- Hair, makeup, and nails
- Decorations for every holiday
- Customized shirts for every holiday
- Professional pictures for every holiday
- Monogramed everything
Your needs have to be met BEFORE you spend money on wants. It is okay to spend money on wants, you just need to be able to afford the amount that you are spending.
I talk to people everyday that are overspending $1000+ every single month and it’s because they are not prioritizing and tracking their spending.
I was the same way before I started tracking my spending. We were overspending every single month and eating out way too much.
You could easily justify costs as needs but if you want to get ahead and financially secure then you really need to evaluate why you are spending money on things you don’t need, if you are overspending every single month.
It is also just as important to have fun and reward yourself to stay motivated. It just needs to be reasonable and depends on your income and budget.
If you have to justify a purchase by saying “I work hard, I deserve it” then you don’t need it. If you can afford it and pay cash for it great. But if it will take a huge percentage of your take home pay, you don’t deserve it.
You do not deserve the strain on your income.
You do not deserve the stress of a huge payment.
You do not deserve for that car to be repossessed and ruin your credit.
If you only make $2000 every month, you shouldn’t be spending $600 every month eating out, at the salon, on a smartphone, and the largest TV package you can get.
It’s all about priorities and how to reach your bigger goals, like saving for emergencies and paying off debt.
How to Determine Your Household Budget Percentages:
In order to determine your percentages, you have to write out your budget.
TO GET STARTED, GRAB THE BEGINNERS GUIDE TO BUDGETING
One of the most important steps in doing your budget and determining you percentages is tracking your ACTUAL spending.
This is so important when compiling your budget and evaluating where your money has been going.
If you are still working on determining where your money has been going start there.
You have to determine what you have actually been spending, not what you THINK you have been spending.
We typically think we are spending way less than we actually are.
Then you can determine what percentage of your budget you have been spending on each category. Then you can make adjusts in your future budgets.
Once you have your budget planned out, then total up the budget categories based on the larger category, like housing and transportation costs.
Once you have your income and general category amounts, then you can determine the percentages.
- Debt $800
- Housing: $1200
- Food: $800
- Utilities: $450
- Transportation: $600
- Giving: $500
- Healthcare: $50
- Insurance: $300
- Personal: $300
Total expenses = $5000
These amounts are based on monthly spending.
In order to determine the percentage you have to divide the category amount by the income amount.
Housing= 1200/5000= 0.24 which is 24%
So, for the above example the budget percentages look like this:
- Housing: 24%
- Food: 16%
- Utilities: 9%
- Transportation: 12%
- Giving: 10%
- Healthcare: 1%
- Insurance: 6%
- Personal: 6%
- Debt: 16%
Total = 100%
When you do a zero-based budget, you plan every dollar, so your budget should be at 100% when doing the calculations.
Now in the example above, if they paid off their debt, they could easily afford to have spending money AND save 16% of their income for retirement and emergencies.
This example is not even a high income! It’s actually average and they could easily cut food and personal spending down in order to send that money towards their debt.
Imagine the possibilities they would have if they were debt-free.
Budgeting Apps to Determine Budget Percentages:
You can easily determine your budget percentages by using an app. However, if you are budgeting by paycheck like I do, it’s hard to budget just with an app.
Apps are very helpful when categorizing your transactions and determining your percentages though.
What I like to do is use an app called Personal Capital which gives me the breakdown of my spending but I don’t use it for planning my budget.
Determining your budget category percentages is not the most important thing when budgeting. However, it can help you see if a category is way too high so you can make adjustments.
Budgeting is all about prioritizing your money for your goals.
Once you determine your goals and where you want to go, you can make your money roadmap to get there.
Worrying about budget percentages is low on the list of priorities.
If you are new to starting your budget, then start with the beginners guide, categorize your spending and then plan your budget for next month.
Determine your percentages to give yourself an idea of how much you have been spending in relation to everything else.
But if you are stuck on this step and not sure how to go forward, literally move on. This is not that important when you are confused and overwhelmed.