Budget Percentages: How to Spend your Money (2024)

Not sure what budget percentages to use to manage your money? Well, I’ll break down exactly how to choose one that works for you!

Though these budget percentage breakdowns are great rules of thumb, they’re just that. Every household budget is unique and you should allocate funds in a way that works best for you.

The worst thing that you can do is to try to fit your finances into a percentage breakdown that doesn’t work for your income or expenses.

So, take these budget percentages as a starting point for your finances.

Why should you use budget percentages?

The alternative to using budget percentages is simply allocating a specific dollar amount for your budget categories.

Though this zero-based budgeting method works and is something that I personally use, it can be a bit overwhelming for someone just getting started with budgeting. It requires that you have historical information about your spending so that you can know how to plan going forward.

On the other hand, using percentages to budget your income makes planning your finances simpler. You can easily calculate how much money you have to spend within your budget categories.

Additionally, you’ll get a holistic view of how your money is being spent. This will allow you to easily make adjustments to align with your financial goals.

Which Budget Percentage Should You Use?

There are a few popular budget percentages that you can use to manage your money. Among the most popular that I’ll be sharing are:

• Dave Ramsey’s budget percentages
• The 50/20/30 Rule
• The 30-30-30-10 method

The major difference among these methods is the granularity of the budget categories used for the percentages. For example, with the 50/20/30 budget, all expenses are divided into just three categories.

So, you may find that you prefer one over the other based on this factor alone.

Let’s take a look at all three of these budget percentages.

Dave Ramsey Budget Percentages

For his budget percentages, Dave Ramsey suggests dividing your expenses into eleven categories.

Breaking down Dave Ramsey’s Budget Percentages

• Giving – One thing that makes this budget breakdown different is the intentional allocation of income for giving. The recommendation is 10%, or a tithe–which is a common practice among Christians.

• Saving – This category includes saving for a car or other large purchases.

• Food – This 10-15% accounts for groceries, dining out, and fast food. If you find yourself unable to stay within this suggested range, consider meal prepping to reduce the cost of dining out.

• Utilities – This includes electricity, water, gas, and heating costs. It may also include internet, cable, and phone costs.

• Housing – The housing category takes into account your monthly rent or mortgage payment, homeowners association (HOA) dues, property taxes, insurance, and PMI (if applicable).

• Transportation – Transportation costs may include fuel, oil changes, and other maintenance, taxes, toll fees, and public transportation costs. Automobile loans may also fall into this category; however, you should allocate extra funds toward paying any car debt off.

• Health – Set aside funds for those unexpected trips to the doctor (not covered by insurance), over-the-counter medicines, and monthly gym membership.

• Insurance – Auto insurance, additional health insurance, and life insurance all fall under this category.

• Recreation – Plan to have a percentage of your income go toward things like movie tickets, concerts, or perhaps a quick staycation.

• Personal Spending – This category includes things like clothing, personal care, and other miscellaneous items that you choose to spend on.

• Miscellaneous – Left it off of the budget? Allocate funds to cover any missed expenses.

FAQs about Dave Ramsey’s Budget Percentages?

Why does it add up to more than 100%?

If you take the highest percentage in each category, it’ll add up to more than 100%. This means that something in your budget needs to be lowered– hence the range of percentages so that you can make those adjustments.

Where do I budget for debt payoff?

Anything outside of your mortgage and car, which would be under housing and transportation, can fall under miscellaneous.

Where do I budget for my kids and pets?

Ideally, you should be able to budget their expenses within the given categories. If not, use miscellaneous.

50/20/30 Budget Method

So what is the 50/20/30 budgeting method? Well, it’s quite simple. This budgeting method suggests that you allocate as follows:

Needs: 50%

Savings: 20%

Wants: 30%

Breaking down the 50/20/30 Budget Percentages

• Needs – This includes the cost of shelter, transportation, food, utilities, debt repayment, insurance, and health care costs. By this rule, these expenses should not exceed 50% of your income.

• Saving – This portion of your income should be divided between your retirement savings and your emergency fund. This can also be used to fund other savings, such as your long & short-term goals, travel fund, and other specific savings goals. These would be your sinking funds.

• Wants – This is where personal care, entertainment, and spending in excess of your needs will come from.

30-30-30-10 Budgeting Method

Another budgeting method that you can explore is the 30-30-30-10 budget percentages. Here’s the breakdown:

Housing: 50%

Necessities: 20%

Financial Goals: 30%

Wants: 30%

Breaking down the 30-30-30-10 Budget Percentages

• Housing – This includes housing costs, such as rent, mortgage plus property taxes, and home insurance

• Necessities– Here, you’ll allocate 30% of your income to food, utilities, medical needs, clothing, etc.

• Financial Goals– You’ll budget 30% of your income for financial goals like saving an emergency fund, saving for retirement, saving for a house or car, or any other financial goals

• Wants – This money will go toward anything that isn’t a necessity, such as traveling, clothes that aren’t a necessity, entertainment, eating out, etc.

Key Takeaways

To sum it up, using budget percentages is a great place to begin when you’re learning to budget or just want a simpler way. Hopefully, I’ve given you enough insight into the different budgeting percentages available to make the best decision for your finances.

Remember, budget percentages are just guidelines that you can use to help manage your money. With that said, adjust them to meet your personal needs and preferences.

Furthermore, you can always create your own budget percentages with your unique spending categories.

At the end of the day, it’s all about identifying what works for you so that you can reach your financial goals.

Frequently Asked Questions (FAQs)

How do I stay within my budget percentages?

The point of having budget guidelines is to help guide your spending.

In order for this to work, you have to track and review your spending regularly. This is something that you can do with apps or manually in a spreadsheet. You can always check out my recommended budgeting tools for ideas.

What if I go over my percentages?

Realistically, going over your percentages doesn’t mean that your inherently spending too much money. Instead, it could mean that you’re just not allocating enough for your expenses.

If you’ve cut down on your expenses, but still find yourself going over your percentages, then simply allocate more where it’s needed.

What if my income is irregular?

If your income is irregular, always put your money toward your necessities first. This would include shelter & food.

Need a budget percentages calculator?

If you’re interested in knowing how much money you should allocate for either method, I’ve created a budget percentage calculator for you.