Budgeting is tough but it’s important and it’s something my husband, Chad, and I have been working on recently. If you have every tried to budget you understand that there’s a big learning process involved. You don’t just create a budget and immediately have it all figured out. Budgets are active, meaning they are constantly changing. You’ll have to adjust all the time to make it work. You have to stay on top of those changes and be consistent with sticking to the plan.
For instance, we are looking for a place to rent while we are selling our house. When we started looking we realized that we needed to decide how much we want to spend on rent each month before we start looking so we don’t get too excited about something that is out of our price range. My first thought was, “Well, what can we afford?” We came up with a number and we got back to our search for a rental.
My Money Mindset Shift on the Budgeting Breakdown
A week or two into the search, I came across a blog post that broke down living expenses and how much of your income you should be spending on each expense. I was surprised to see this. Then I thought, “Duh, why didn’t I already think about this?” When I calculated what we were planning to spend, it was a considerably higher percentage of our income than was suggested in the blog post. That got me thinking. We should be sticking to some kind of percentage breakdown for every area of our expenses, as much as possible.
This idea suggested that just because you can afford it, doesn’t mean you should. If we spend less than we can afford on rent then we’ll have more to go toward debt and other expenses. This seems like a no-brainer but I would be willing to bet that most people don’t plan like that. I hate to admit that this wasn’t how I was already thinking. Mostly because I always talk about how I want to live well below our means. I just assumed we were because we do obvious things like both of us drive older cars that are paid off. But we weren’t planning our finances, we weren’t budgeting, and that’s what happens when you fail to plan. You just don’t think about it.
I couldn’t find the blog post that I read that sparked this mind shift for me, so I decided to write one of my own to share with you all. Remember, I’m not claiming to be an expert. Exactly the opposite, I stink at managing money. But these are the things I’ve found from the experts out there that have worked well for us when we do them.
How Much the Experts Say You Should be Spending on Living Expenses
There are some slight differences in the budget breakdown of different money experts. From what I can tell, the differences come from the focus of the budget. The percentages and categories themselves look different with different goals. A focus on paying off debt is going to look different than a focus on savings, for example. The budgeting breakdown we have been applying to our expenses is Dave Ramsey’s.
- Giving 10-15% — Give 10 percent of your monthly income to worthy causes.
- Saving 10-15% — Save 10 percent of your income for retirement.
- Food 10-15% — Grocery shopping and eating out.
- Utilities 5-10% — Cell phone, cable, internet, gas, and electricity.
- Housing costs 25-35% — Rent or mortgage, along with tax, homeowner’s insurance, renter’s insurance, HOA fees, and PMI.
- Transportation 10-15% — Any transportation costs: public transportation, car payment, gas, maintenance, and parking.
- Health 5-10% — Medical and health care bills (not including health insurance premiums).
- Insurance 10-15% — Life insurance, health insurance, and auto insurance.
- Recreation 5-10% — Things like gym memberships or kids’ activities, as well as entertainment expenses like concert tickets and travel.
- Personal spending 10-15% — Clothes, shoes, hair care, home furnishings, home decor, etc.
- Miscellaneous 5-10% — The “stuff you forgot to budget for” category.
You probably noticed the wiggle room in each of these categories. You can customize your budget to your needs. I like Dave Ramsey’s budgeting breakdown, but there are others like this one if you prefer. The most important thing is that you choose percentages to stick to that work best for your financial situation and lend themselves best to your goals. Remember, if you don’t have a plan then you’re not paying attention. That’s the worst thing you can do if you want control of your finances. Feel free to share your budgeting tips in the comments. We can all use all the help we can get!