Budgeting can be said to be simply the process of drafting a plan to spend your income. This spending plan is called a budget. Creating a spending plan allows you to ascertain whether you will have enough money to do the things that are important or would like to do. Budgeting is only making sure your expenses match with your income. Dave Ramsey budget percentages are a guide to show you the best way to budget. We will be exploring his ideas in this article.
What is a budget?
A budget shows how one’s income is spent on various items of expenditure on necessities, luxuries, comfort, and other cultural wants. It shows the distribution of income over multiple expenses.
Budgeting gives room to create a spending plan for your income, it guarantees that you will always have enough money for needful things and the things that are important to you.
Following a budget or spending plan can also keep you out of debt or help you through working your way out of debt if you are currently in debt. Dave Ramsey’s budget percentage guidelines come in handy, whether as an individual or a family.
Dave Ramsey Budget Percentages
Confused about how to start budgeting? Dave Ramsey’s endorsed household budget percentages broken down into categories that provide you with information and guidelines on how to begin. These budget percentages are based on the final income after tax.
Giving – 10%
Saving – 10%
Food – 10 to 15%
Utilities – 5 to 10%
Housing – 25%
Transportation – 10%
Health – 5 to 10%
Insurance – 10 to 25%
Recreation – 5 to 10%
Personal spending – 5 to 10%
Miscellaneous – 5 to 10
Budget percentages are a beginning point to making a budget that works for you. Below is a comfortable budget percentage pie chart you can use as a guideline towards achieving budgeting.
Remember that this approach is a starting point for you to create your budget. Use it to get started then customize your budget that suits your needs.
Dave Ramsey’s budgeting method is the most detailed. It is made clear what categories one’s spending will align with and how much should be distributed to each.
For his budget percentages, Dave Ramsey suggests splitting expenses into eleven main categories, which would be explained and the costs that fall into each category.
Related Posts:
- Best 65 Cheap Foods to Stretch Your Grocery List Budget for 2024!
- 13 Best Hacks for Healthy Grocery Budgeting – Save tons of money!
- 18 Things to Sell to Make Money Right Now
- How to Save Money on Groceries and Eat Amazing!
Giving 10%
There’s no written law on how much one can give, except for traditional and religious beliefs. It is common practice for Christians to give a tenth of their income. Giving is part of human existence; thus, it is necessary to plan for it either for religious beliefs or a charitable cause as it is somewhat inevitable.
Saving 10%
Saving is simply income not spent or deferred consumption. In economics, saving is defined as after-tax income minus expenditure simply put, refers to any income not used for immediate consumption. The income saved is called the average propensity to save.
The fraction of increased revenue that is saved is called the marginal propensity to save. The saving rate is affected directly by the general level of interest rates.
Within personal finance, the act of saving is similar to the nominal preservation of money for future use. A deposit account with interest gained is customarily used to save money for future needs serves as an emergency fund, to make a capital purchase (car, house, vacation, etc.)
Methods of saving include putting money aside, such as a pension account, a deposit account, and a cash or investment fund.
Saving also involves reducing expenses, such as recurring costs. In terms of personal finance, saving includes low-risk preservation of money, as in a deposit account, versus investment, wherein risk is more significant.
Food 10 -15%
Food is simply any nourishing substance that is eaten, drunk, or otherwise taken into the body to sustain life, health, provide energy, and promote growth. It is common knowledge that without food, survival is impossible as it is an essential part of human existence. However, it shouldn’t take up an excessive portion of your budget.
Utilities 5 -10%
Whether it’s paying electricity bills, gas, transportation, sewage, or digital TV and broadband package, one thing is sure, it is essential. Keep in mind that these costs have tendencies to fluctuate throughout the year, which in turn will affect your budget.
Housing 25%
Housing or living spaces in general, either personally owned, rented, or mortgaged, refers to the construction and assigned usage of houses or buildings collectively, to shelter people.
Not a homeowner yet, your monthly housing cost should fall under less than half of your take-home income. If you own a house, remember there taxes and dues plus other hidden fees attached to owning a home shouldn’t be ignored.
Transportation 10%
Any device used to move an item, a person, or persons from one location to another is transportation. Typical forms of transportation include planes, trains, automobiles, ships, and other two-wheel devices such as bikes or motorcycles.
Transportation cost includes gas and maintenance for privately owned cars, motorcycles, or transportation fares for those who use public means to get to various destinations and carry out daily activities.
Dave suggests 10 percent of your income kept aside for this, but bear in mind these costs might fluctuate due to change in policies and economic conditions.
Health 5 -10%
Incurring health expenses is inevitable since you can’t predict what sickness or disease would befall you. This affects the knowledge of how much is enough to budget towards health-related issues. Nevertheless, set aside funds for unforeseen health circumstances and medical bills not included in your health insurance.
Insurance 10 – 25%
Insurance is a form of protection or reimbursement from financial loss. It is a means of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
For some individuals, a certain amount is deducted from part of their take-home pay to cover subsidized health insurance and other insurances. Still, there are other forms of protection that must include life insurance to automobile insurance house insurance and general disinter that might occur.
Recreation 5 -10%
No human is an island; thus, there must be something you do for fun; this will cost money. Sometimes you just want to spend money buying items or things for yourself, such as clothing, movie tickets, cosmetics, concerts, and trips.
Personal Spending 5 -10%
Sometimes it is okay to want to spend money on things for yourself. Other times, it’s a necessity. Expenses that are considered mostly personal for things such as dining out, own shopping, clothing, cosmetics, partying, and other non-essential expenses would typically fit into this category of spending.
Individuals seeking to save cash will often begin with reducing certain personal spending habits to cut down unnecessary costs and to save money for more significant expenses.
Miscellaneous 5 -10%
Most times, without even realizing it, you are impulsively purchasing things you might never really need. This is usually the first step of incurring debts or living from hand to mouth, which is why most importantly, setting aside 5-10% of your income to cover for things you might have probably left off the budget, unforeseen expenditures, and impulsive buying.
How Realistic is Dave Ramsey Budget Percentages?
Many factors may affect one’s budget plan, so it is important to note that Dave Ramsey’s budget plan and other budget plans are just guidelines for achieving and setting a budget plan that suits your lifestyle and income.
Factors such as an increase in home value make it difficult to stick to this budget method as it includes both home and associated fees. Health insurance is costly for ordinary middle-class families. A typical family insurance plan usually costs anywhere from $350 to $600 or more.
These numbers alone make the budget plan somewhat unrealistic and already place someone over budget according to percentages. Still, Dave advises that you work extra by doing multiple jobs, move into a cheaper home, or cut down on certain expenses to balance your budget. Dave Ramsey’s principles are reliable, but not all apply to everyone.
Dave Ramsey Sample Budget
This is a straightforward budget outline using Dave’s guidelines. It is relevant to note that this sample budget might not align with your budget or suit your lifestyle because it is only a sample guide. Assuming One’s monthly income is $1500 after-tax, below is a sample budget.
Earnings $1500 monthly
Giving $150
Saving $150
Food $150
Utilities $75
Rent $375
Transportation $150
Health $75
Insurance $150
Recreation $75
Personal spending $75
Miscellaneous $75
Common Budgeting Methods
There are various budgeting methods Dave Ramsey, 50/30/20 method, paycheck to paycheck budget, and reverse budgeting. But two widely known and most used budget percentages are Dave Ramsey Budget percentage, and the 50/20/30 also referred to as 50/20/30 method by Elizabeth Warren.
The 50/30/20 rule is relatively easy. It merely states that one should divide after-tax income into three categories: 50% needs, 20% wants, and 30% savings. Relating this rule with the budget categories above, you come up with 50% needs.
These needs, such as shelter, food, essential utilities (water, electricity, natural gas), groceries, transportation, insurance, loan payments, child care, and other expenses need to be handled for you to do your work.
30% wants: differentiating between needs and wants isn’t always the simplest thing to do and differs from one budget to another. Though wants aren’t so essential and most times can be lived without and are often for fun such as travel, recreation, entertainment, gifts, hobbies (gym membership), meals out, personal, and miscellaneous.
20% savings: this can be said to be the most critical of the three categories and can be said to be your sinking or emergency funds. These categories consist of saving for emergencies knowing they are inevitable, paying up loans such as student loans or down payment for a house, etc., retirement saving, and many more.
One advantage of this method is that you can decide which and what is more critical by switching up the percentage allocated between wants and savings, including needs. You could decide you want to take up 20% and your savings 30% and vice versa.
Another is, this budget method applies to any income level. Though the success of this budget method varies greatly depending on where you live, while the cost of living also plays a very vital role in its effectiveness.
Paycheck to paycheck method
This is very much what it sounds like. Every time you are paid, it’s gets budgeted for without having to wait for a calculated period. This is merely assigning every single expense to a specific paycheck or source of income.
Budgeting by paycheck is somewhat the perfect budgeting method for those who do not get paid monthly. By using a monthly budget when you are paid weekly or bi-weekly, you can create confusion with your cash flow because you do not have access to all of your cash at the end of the month.
Reverse Budgeting
Reverse budgeting is also referred to as pay yourself first. It’s a budgeting method that entails saving first to fund your most essential goals before spending whatever is left guilt-free but not at the detriment of significant expenses. Here the focus is on building your spending plans around savings goals such as retirement and clearing debts before other costs follow.
Advantages of Budgeting by Percentages
- It tells you exactly how to divide your money which saves time of having to figure it out on your own
- It’s done for you which makes things even simpler
- It is less limiting
Disadvantages of Budgeting by Percentages
- Gets confusing when deciding which expense goes into what category
- Barely take into account the constant increase in mortgages and rent
- Savings percent is too unrealistic, especially when trying to meet up payments or pay off debts
- It’s not designed to suit you. Budgeting by percentages is a straightforward budget method that leaves too much variability, thereby creating an avenue for mistakes and money unaccounted for.
- Barely works for small budgets.
- Extra calculations are needed to figure out the percentages
How To Stay Within Your Budget Percentages
The aim of drafting budget percentages is to help put your spending in check. More importantly, it is to ensure you don’t overspend more than you earn. For this to be achieved, you need to be realistic.
You should focus on minor spending cuts and improvements as soon as you notice an area that needs it. You have to keep track and record your spending regularly. Various apps can help you with budgeting if you decide not to draft it with a pencil and paper or use a spreadsheet.
The www.everydollar.com (Dave Ramsey’s budget app) or Mint apps: www.mint.com can automatically categorize your spending.
In addition to leveraging these apps, carrying out a regular review of your spending is advised. Compare your spending to the endorsed budget percentages to know where and how to make changes for improvement. Review your spending and determine if increasing or reducing the amount of money allocated to each area.
Final Thoughts on Budget Percentages
Use the budget percentages shared in this post as a beginning point for creating your budget. There are no rules whatsoever to follow. Nevertheless, that provides a general guide of where to allocate your money.
Bear in mind that the way you spend your money reflects the things you deem most important. Though some categories are higher than others, it is essential your spending aligns with your financial goals.
Be realistic when creating spending limits else you have set up to fail in budgeting. There’s no shortage of useful budgeting methods, but knowing that what works for one person may not work for another is vital.
Related Posts:
- Best 65 Cheap Foods to Stretch Your Grocery List Budget for 2024!
- 13 Best Hacks for Healthy Grocery Budgeting – Save tons of money!
- 18 Things to Sell to Make Money Right Now
- How to Save Money on Groceries and Eat Amazing!
Pin to Pinterest:
Pin to Pinterest so other moms find out about the budgeting!
Leave a Reply