10 Recommended Budget Percentages By Category: How Much Should You Spend?
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How closely should someone follow recommended budget percentages? That’s one of the toughest questions to answer whether you’re new to budgeting or have been budgeting for several years.
A budget is another name for a spending plan. It gives you more clarity and control as you decide how much money goes toward what expense.
A budget also helps you stay on track to meet your financial goals. If you’re spending too much money in one category, you’ll realize this once you review your budget and track your expenses.
To avoid spending half your budget on food or clothes, it’s important to establish monthly budget percentages by category.
Your percentages may vary because everyone’s situation is different, but a common method for beginners to use is the 50/30/20 budgeting method.
What is the 50/30/20 Budget?
The 50/30/20 budget involves breaking up your spending categories into three main budget percentages. With this method, you spend 50 percent of your income on living expenses like your housing, bills, and food.
Thirty percent of your income is spent on on flexible expenses and wants. This includes your phone bill, gas, gym membership, and so on.
The remaining 20 percent of your income is allotted for debt payments and savings.
If you bring home $3,000 per month, for example, here’s how the 50/30/20 budget would pan out:
- Living expenses would cost $1,500 per month
- Flexible expenses and wants would cost $900 per month
- Debt payments and savings would cost $600 per month
This method seems simple enough but it doesn’t work for everyone. Some people may have higher living expenses because they live in an expensive area of the country.
Others may want to dedicate more of their income toward paying off debt and increasing their savings so they quickly improve their finances.
What if this person bringing home $3,000 per month has student loans and a car payment that totals $600? Would they not be able to save or make any extra debt payments?
To me, $900 per month in ‘fun’ or ‘flexible’ money sounds a little high. You can invest or save a large part of that money instead.
This is why I recommend being flexible with monthly budget percentages by category and base them on your current lifestyle and goals. Don’t get stuck in a box of spending guidelines someone else created to meet someone else’s needs.
Here are some average household budget percentages to follow and how you can determine what works best for you.
Look at Your Top Spending Categories
Before you start narrowing down your budget percentages by category, look at your overall spending. Examine where most of your money goes and if anything surprises you.
You may find out that you give into impulse shopping on a regular basis. That’s an excellent place to start trimming expenses and spending. You might find other places to cut back.
However, there are some necessities you may not be able to minimize and it’s a good idea to adjust your budget category percentages to accommodate those.
For most people, their top three expenses are housing, food, and utilities. Expenses like medical insurance, transportation costs, and minimum debt payments can be high as well.
Once you know what your top three to five spending categories are, you’ll know which costs will need a higher percentage of your income.
Assess Your Debt
Americans love their debt. We have over $14 trillion in debt, as of third quarter 2019, according to the Federal Reserve. How much debt you hold and the type of debt can heavily affect your budget.
When determining a household budget percentage for debt payments, you also need to consider your goals. How does your debt make you feel?
Do you want to get rid of it ASAP? Are you using any particular strategy like student loan forgiveness?
*Related: Have a check you need to cash? Here’s our guide on the best places to cash a check near me to get money now.*
Even if you’re fine with only paying the minimum on your debt, if you have high minimum monthly payments, you’re going to need to minimize other budget category percentages and increase the percentage of your income that you’re putting toward debt.
Or, if you’re trying to pay off debt quickly, you’ll have a higher budget percentage for this category. When I was aggressively paying down my student loans, I put at least 40 percent of my income toward debt as I was paying significantly more than the minimum.
This was temporary, of course, but I had to adjust my lifestyle and lower my spending in other areas to pull it off.
Consider Following This Housing Rule
People may not talk much about recommended budget percentages by category but what I do always hear about is the housing percentage rule. The housing rule recommends you spend no more than 30 percent of your take-home income on your rent or mortgage.
This isn’t set in stone, but it’s a sound recommendation to follow. Spending any more of your income on housing can put you in a tough financial spot.
Personally, I like to spend even less on housing and cap it around 20 -23 percent. That way, I can still have room for utility bills, maintenance, and repairs.
If your housing costs suck up nearly half of your income, you’ll likely be house poor and not have much left to cover your other expenses.
Recommended Budget Percentages
Below are some recommended budget percentages by category that are the most useful. Be mindful that these recommendations are simply a starting point.
Everyone’s situation is different and your numbers may vary depending on factors including: where you live, your income, how much debt you have, your savings and investing goals.
Feel free to play around with these percentages until you find out what works for you.
Housing: 25 – 35 percent
Utilities: 5 – 10 percent
Food: 10 – 15 percent
Transportation: 10 – 15 percent
Health: 5 – 10 percent
Insurance: 10 – 25 percent
Personal: 10 – 15 percent
Recreation: 5 – 10 percent
Saving: 10 – 15 percent
Tithing/Giving: 10 – 15 percent
Aggressive Saving/Debt Payoff Budget Percentages by Category
Are you trying to pay off debt faster or save more aggressively? Here are my recommended budget percentages:
Housing: 20 – 25 percent
Saving/Debt Payoff: 30 percent (start here and see if you can increase it)
Utilities: 5 percent (keep utilities lower by renting as some might be included in your rent or get a roommate to split costs)
Food: 10 percent
Transportation: 5 percent
Health: 5 percent
Insurance: 5 – 10 percent
Personal: 5 percent
Recreation: 5 percent
Tithing/Giving: 5 percent
How to Make Your Budget Stretch Further
Regardless of what your monthly budget is, try to take advantage of opportunities to stretch your income. Stretching your income frees up money for other categories you may not otherwise be able to cover, or it increases what you’re currently doing.
Below are a few resources to help you stretch your budget further:
Housing: If you have a mortgage you know the role your interest rate plays in your monthly payment. Rates are going up, but they’re still low, historically speaking.
Check rates at LendingTree to see how much you might be able to save on monthly payments.
Debt payments: Are you currently repaying credit cards or other high-interest debt? It’s possiblwe to slash those rates, helping you save money and pay off debt faster by refinancing or consolidating that debt.
*Related: Looking for other ways to save money? Check out our top options to lower monthly bills and put more funds back into your budget.*
Check rates at Fiona to see how much you might be able to save each month. They let you compare up to 17 lenders at once to find the best fit.
Cut the cord: Cutting the cord is the easiest way to save money each month. The average cable bill is over $110 per month. You can easily cancel your cable and save at least $50 per month.
Auto insurance: When was the last time you compared auto insurance rates? Nearly 40 percent of Americans haven’t done so in the last three years, according to Time.
If you’ve not compared rates recently, you may be leaving money on the table. Compare rates at Esurance to see how much you can save every month.
The above is only the beginning. There are many ways to save money each month that require little to no work and can help stretch your budget.
No budget is the same and your budget percentages will vary over time. The key is to start and by trial and error, see what works best for your lifestyle and goals.
If you’ve never made a budget before, don’t let it keep you from starting. It’s not that difficult to make a budget. You begin by writing down what you make along with your average monthly expenses.
You can use our recommended budget percentages to help you determine if there’s need to cut back.
Over time, you’ll notice that living on a budget helps you manage your money better. With a little work, you’ll find opportunities to improve your finances now and in the future.
What’s one area you really want to cut back on in your budget? What has been the biggest success in trying to live on a budget? Have you ever used a budget percentages calculator to help form a budget?