Your income consists of 100% of your spending as a whole, but do you actually know how much you should spend on certain monthly expenses as a percentage of your salary.
25%- Housing Costs (Max is 35% of income)
15%- Debt Reduction ( If not in debt use this to allocate to other items)
15%- Retirement/Savings Goals/Emergency Fund
10% -Transportation
15%- Food
10%- Utilities
10%- Personal
10%- Charity
5%- Recreational
5%- Clothes
5%- Misc
If you add up all the percentages they are over 100% of your Income and it’s your job to balance it out by increasing and decreasing certain categories. This is just an example of what each category should be percentage wise give or take. The lower the categories to bills the more you can allocate to the good things in life like savings/goals, personal, and recreational.
Obviously this is not set in stone, but this is what the experts recommend. If you were hell bent on getting rid of your debt then you can allocate funds from other places and increase your debt reduction amount. Even lenders who are working with new clients on a mortgage loan; notify their clients that the mortgage payment including interest and taxes can not exceed the maximum of 35%.
Some people will argue that a portion of your income up to about 10% should go to giving others or a charity of your choice. But if your income can not sustain this amount consistently on a monthly basis then your only left with the first option, which is to take care of your household first in order to survive. On the other hand if your housing cost as a portion of your income is only 15% then you can definitely afford to give to your favorite charity. See my new page under Budget tab as to help you set up a easy to use budget printout that you can have as a visual reminder.
I will actually be up front with you all that my budget is not in line with the recommended percentile amounts listed above. For the sake of this post I will release my percentages to you as I continually am attempting to improve my budget. I know what your thinking that I am not doing as I preach, but for arguments sake my budget is in line except for two maybe three categories in which I am over the max limit and unfortunately are a current necessity.
Housing %- 40% (Over)
Utilities %- 8%
Food %- 1% (The Misses takes care of this)
Transportation%- 4%
Clothing %- 2%
Personal%- 23% (Child Care) (Over)
Recreational%- 5%
Debts%- 13% (School Loan) (Over, as this is a category you never want)
Savings%- 4% (After Tax savings- I do a total of 12% of my income before tax)
Total = 100%
Comment back if you have ever ran these numbers as a percentage of your income. If you feel up to it post your actual percentages for your preferred categories on the same comment.
Now we all can be better aware of how our budget gets allocated.
Great post I never knew what was the right way to allocate my income by percentages.