Design a Workable Budget by Percentages

The first thing a financial planner will advise a client to do is establish a budget. The most common follow-up question by those looking to improve their finances is how to go about designing one that is realistic and workable. Starting this process by categorizing every expense, digging up old bills and records while keeping the paperwork organized, in an attempt track where every dime is going can be a very daunting and intimidating job. Add to that the fear of getting the numbers wrong and not allocating enough funds to cover the month’s needs. There is however, an easier way to starting and creating a workable budget…budget by percentages.

budgeting tips
photo credit: 401(K) 2013 via photopin cc

Using percentages to design a budget won’t eliminate the need to be diligent, but it is practical, flexible and easy to follow. Begin by calculating your total net income for a month. A simple way to do this is by adding your take home pay from your pay stubs for one month. If your pay has remained basically static for the past year, you can also use the net figure from your last statement for the year and divide it by 12. This figure is the base line from which to design your budget.

The following chart offers a range of percentages that can be used to personalize your budget. For example, some people will use more of their income for housing and will use the higher rate when designing their budget. The list can be divided further in order to cover more of your specific needs. Or if the list is too long, feel free to compress it into fewer categories.

  • 30-38 percent mortgage/rent including taxes, repairs and insurance
  • 5-10 percent for savings, investments, pensions, insurance
  • 5-15 percent for food
  • 10-15 percent for transportation, including gas, insurances and maintenance
  • 6-8 percent for utilities
  • 3-7 percent for clothing
  • 5-10 percent for medical expenses, including insurance premium and out-of-pocket expenses
  • 3-6 percent insurance
  • 5-10 percent for personal care and services
  • 5-10 percent for credit card and consumer loan charges
  • 5-10 percent for entertainment, gifts, travel, misc.

These percentages are guidelines to be used to determine 100 percent of your budget allowances. A helpful tool designed by Dave Ramsey will help you begin the process. After budgeting for home, transportation and food, investing should be the next priority, especially when the American economy is unpredictable and threatens the future of those depending on Social Security. Resist the urge to spend more than you’ve budgeted in any category. Here’s an example of a personalized use of percentages for a family taking home $5,000 with a conservative plan of action:

  • 30% Housing – $1,500
  • 16% Transportation – $800
  • 6% Utilities – $300
  • 5% Food – $300
  • 3% Clothing – $150
  • 4% Insurance – $200
  • 5% Medical – $250
  • 5% Charitable – $250
  • 10% Savings/Investment – $500
  • 5% Personal – $250
  • 5% Entertainment – $250
  • 5% Debts – $250

Your first attempt to write a budget may not be perfect; but over time you’ll be able to fine-tune the numbers into perfection. You and your family will reap increased dividends with better financial management. You’ll be securing your future and that of your kids and grandkids while protecting yourself from the consequences of emergencies that have been known to destroy families.

About the Author: Noreen Ruth is a regular contributor to and numerous financial-related blogs and websites. She specializes in credit and debt-related issues and enjoys educating consumers about the latest rules and regulations, as well as ways to build, improve and maintain good credit.  Follow her on the ASAP Credit Card Blog to stay up-to with the latest credit card news, reviews, information and more.

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