A Guideline For Your Budget And Spending Plan

I am often asked how much people should be spending on given categories in their spending plan.  Here is the link to Crown Financial’s Budget Calculator which let’s you put in your salary and taxes and will quickly break your pay down using predefined percentages.  It is by no means a perfect tool, but it helps give you a rough guideline of how your own spending stacks up.   Each person’s spending is personal and will even vary by region, but these percentages are a decent starting place.   The first thing to check is whether or not any of your budget categories are way out of line and then work you way down from their.

Also here is a pretty interesting graphical chart of the average monthly American expenses according to the Consumer Price Index.

Now that you know the percentages, here are some highlights to keep an eye on :

1. Housing – If your mortgage + taxes + insurance is above 25-30% of your take home pay, you are asking for budget tightness.  If it starts to get above 33%, chances are you might not be able to make an real head way and you may need to consider some more drastic options.
2. Food – The percentage will likely be higher for a lot of geographic location especially if you buy more processed and pre packaged food.  Buying ingredients rather than meals is usually significantly cheaper.
3. Debt and Investments – Ignore the debt and investment categories and focus on living on as little as possible and putting the rest on debt.  Invest once you are out of debt except for the mortgage.
4. Savings – 1,000 to 2,000 in the bank as an emergency fund and then the rest on debt.
5. Entertainment and Clothing – If you are in debt these should be limited to necessities.
6. Auto – Auto loans will destroy this budget item, especially with the price of gas.  Consider going bold. Short term pain for long term dreams.

Gather Little By Little shared his thoughts on the underlying percentages a while back if you are interested in reading another point of view on the matter.  What are your thoughts?