If you've ever wondered if what you're budgeting for certain categories is too much or too little, today I'd like to share recommended personal budget categories and budget percentages as a reference point for your monthly budget.
It’s hard to make progress towards financial goals when your budget is out of balance, meaning one or a few budget categories are eating up most of it.
While no two budgets will look the same, it can be helpful to reference general guidelines for monthly expenses to see how your budget compares.
Additionally, it’s a good idea to periodically review what percentage of your income is going to your different expense categories.
If you don’t know what you’re spending, or you have never set up a budget before, it’s a great time to start!
Think of your monthly budget as your personal finance roadmap to success. The word budgeting can bring feelings of overwhelm and dread for many people—but a budget gives freedom!
The freedom comes in prioritizing your expenses and then spending without guilt, knowing you have a plan in place. You’re not simply spending and figuring it out later. You’re proactively planning, and consequently, reaping the benefits of knowing you can spend without guilt!
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The first step, before organizing monthly expenses into budget categories, is to choose a monthly budget template.
Once you have a monthly budget, you can use the recommended budget percentages below to gauge how you're doing with each budget category.
There are many different ways to budget, but the best way is to have a zero-based budget. This means that every single dollar of income is planned before the month / pay period begins.
No matter what your preferred budgeting method, I have a free template for you:
· Download my finance planner bundle
· Download my PDF monthly budget templates
· Get my google sheets budget spreadsheet
All you need to get started is a budget template or a blank piece of paper and a pencil or spreadsheet.
Let’s dive into the details!
A budget category typically has more than one expense, and each expense can be categorized as either a fixed expense or a variable expense. Moreover, each fixed or variable expense can be categorized as a discretionary and/or non-monthly expense.
Fixed expenses do not change month to month and are typically due on the same day every month. You know exactly how much the expense will be and when it needs to be paid. Because of this, they are easy to budget for. Examples: rent/mortgage payment, utilities, monthly insurance premiums, etc.
Variable expenses do change month to month, though you may know when the expense is due. Because of the variable nature, an estimate is required for these expenses. I prefer to use a high average for these expenses. Examples: groceries, clothing, entertainment, travel, transportation, repairs & maintenance, gifts, etc.
Variable expenses are typically discretionary in nature and refers to” wants” rather than “needs.” Discretionary spending should be put into the budget last, to ensure all needs/essentials are prioritized.
To capture your true expenses, it’s important to budget for irregular expenses. Many people find themselves frustrated with budgeting because they fail to budget for non-monthly expenses. As a result, when an irregular expense arises during the month, it throws off the budget and they are scrambling to find a way to cash-flow it.
We’ve all had it—the car that needs new tires, the water heater that goes out, the school supplies we forgot about—these unexpected expenses are easier to swallow when we plan for them and have money set aside for them.
I recommend setting up sinking funds for these expenses, which you can read about in depth here.
As we get into the details, keep in mind that this list of categories is a loose guide, not a prescription. Your personal budget may look different depending on various factors—how many kids you have, your monthly income, where you live, whether you’re a one
Think of each monthly budget category as a file/folder, and each budget as the papers inside that folder.
How many different categories you have will depend on many different variables. It may be a matter of personality; some are more detailed than others.
When creating a household budget, start with the essential budget categories and continue in order of importance of each category.
Basic needs should be a high priority—food, utilities, housing, and transportation should be at the top of the budget.
The following budget categories will be organized differently from one person to the next but can and should be used as general budget categories!
Three principles of any solid financial plan are saving, investing, and giving.
Saving and spending are easy to remember- many times we forget the give part.
As Christians, we tithe to our local church. Giving softens our hearts and frees us from dependence on money, allowing us to see God as our ultimate provider.
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Dave Ramsey has long recommended investing at least 15% of your gross income every single month after you have your emergency fund fully funded.
In addition, the savings category can include any future expenses you need to save up for—a new vehicle, a baby on the way, a down-payment for a home, and so on and so forth.
If you don't have an emergency fund, start by setting aside at least 10-15% every month until that is fully funded (6-12 months of expenses). How much money you set aside will depend on many factors. On one hand, if you have irregular income, saving 12 months of expenses is likely sufficient. On the other hand, if you have a predictable, stable income, six months of expenses may be sufficient.
Keep this fund in a separate bank account, such as a high-yield savings account.
Once your emergency fund is fully funded, make a goal to set aside 10-15% of your gross (before-tax) income into a tax-advantaged retirement account. This 10-15% does not include any employer matching option, rather, it is solely your contributions.
If your employer offers a retirement plan and a matching option, you should take advantage of this option. Depending on the variety of funds available through your workplace 401(k), you may want to open an individual retirement account (IRA) as well.
To make this a habit, consider setting up an automatic deduction from your paycheck or automatic ACH transfer into your retirement account on a regular basis.
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Groceries should not eat up more than 10-15% of your income every month.
Do not estimate this number if you are not on a budget, because I can say with 90% certainty that you're best guess is way off :)
My LEAST favorite budget category is groceries, but it is the area that we improved the most!
Every Friday I get a custom tailored meal plan delivered right to my inbox! If I don't like that weeks meal plan, I can login to the site and build my own.
See the resources listed below for more information on how I save thousands every year on groceries!
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Utilities includes expenses such as trash, electricity, water, internet and cable.
This is relatively straightforward, but if any of the expenses in this category are busting your budget (like cable TV), then find a way to make these expenses as low as possible.
We cut the cord on cable, and have DirectTV now, which is about half the price!
Additionally, we bum off my parents Netflix account... we're millennials ;)
Housing is rent or mortgage PLUS real estate taxes, insurance, repairs, and any HOA or other dues/fees.
Beware! Housing is the hole that is sinking most families incomes.
Your mortgage (or rent) and other housing items should not be more than 25% of your total TAKE HOME pay.
If you don't stick to this rule, it might not be right away, but at some point you will start to become a slave to your mortgage payments.
When you're first married and have double income no kids, it might be easy to make a mortgage payment that is 30-40% of your total take-home pay.
However, most people don't stay in the double income no kids situation.
Add in a couple kids, a stressed mom who decides to go part-time, sports and school activities, medical emergencies, and suddenly that mortgage payment starts to sink your ship, leaving no room to save or invest.
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Transportation includes gas, car repairs, parking fees, registration and dues, etc.
Make sure you have a sinking fund for car repairs (and home repairs), otherwise when murphy hits, it will be a big blow to the budget!
We don't want you eating beans and rice for two months straight because your car broke down.
Set up a sinking fund so you can be at ease when murphy hits... and I promise he will hit !
The health budget category includes prescriptions, doctor visits, dentist visits, medical bills, and anything else related to these.
Spending on health will obviously fluctuate month to month, so I'd once again recommend setting up a sinking fund for unforeseen medical expenses.
A really short definition of a sinking fund is just a budget category that rolls over every month (the balance rolls over).
So if you start budgeting $100 a month for medical needs and you don't have any medical expenses this month, you'd carry that amount over to the next month and keep adding to it every month.
Be sure to have a fun money or personal spending budget category, to allot for the extras in life!
It's absolutely essential that you allow yourself some splurge money (even if you're getting out of debt).
Depriving yourself will not work, it'll just lead to a major budget buster!
Personal spending cash is for things like latte's, manicures/pedicures, fast food, or even larger extra expenses like hair highlights!
L ife insurance, health insurance, auto insurance, long-term care insurance, disability insurance, and any other insurance you can think of would fall under this category.
The goal is to keep total insurance costs (even the ones in other categories) below 25% of your income.
So although homeowners insurance would technically go under housing, we want to look at all insurance as a whole as well.
Similar to your personal spending or fun money, the recreation category is for dining out, date night, or any other family activities you want to do.
Maybe you are planning on going to a concert, fair, or to the water park with your kids. Or you'd like to get in shape and purchase a gym membership.
These are the kind of expenses that should be posted against the recreation category.
The miscellaneous category is for things that pop up during the month that are not an emergency.
It's nearly impossible to have a zero based budget and plan for everything unless you have a miscellaneous category.
Use the miscellaneous fund for expenses like a birthday party you forgot about, the family that came to visit, etc.
If you have trouble sticking to your budget even after trying it for a few months, using cash envelopes for the tricky categories is the way to go!
The budget categories that can be the hardest to stick to include groceries, personal spending, and dining out.
The envelope system is a tool in your arsenal you can use to stick to your budget.
You don't have to use the envelope system for every budget category, just the categories you tend to overspend on.
To get my free cash envelope template, subscribe above!
Simply creating a budget isn't going to help you stick to it. Using cash envelopes to curb spending and help you stick to your plan is key!
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Life changes, your needs change, your circumstances change, and thus your budget will change.
Don't be naive or set yourself up for failure by refusing to change your budget as your life changes.
For instance, if/when you have kids, your budget will look quite a bit different than if you're single or married with no kids.
Constantly be tweaking your budget, but only for legit reasons ;)