How to Determine Budget Percentages

Creating a budget isn’t just about tracking each dollar that comes in and goes out. It’s also about deciding how to allocate your income across different spending categories. That means figuring out what percentage of your earnings should go towards essentials like housing and food, as well as goals like debt repayment or savings. This process helps you spot where you might be overspending and make smarter decisions with your money.

Knowing how to set the right budget percentages can be a powerful tool for taking control over your finances and making sure your spending aligns with your priorities. Maybe you’re spending more than you’d like on dining out or entertainment and want to shift some of that money toward paying off a student loan or building an emergency fund.

Understanding how to break down your income by category is key to building a balanced, sustainable budget. Here’s how to get started.

What Are Budget Percentages?

Even if you’ve already created a budget, you may have been thinking of it more in terms of specific dollar amounts than percentages of your income as a whole.

That’s where budget percentages come in: Rather than assigning a set dollar amount to spend in a given category, budget percentages require us to think instead about the proportional amount of our income that the dollar figure represents.

Think of it as a pie chart: No matter the amount of cash you spend on a given category, that money represents a certain slice of the pie. Making sure that slice is the right size is important to ensure that everyone at the table — which is to say, each of your line items — gets some of the pie.

Basics of Budgeting Percentages

There are no hard-and-set rules on what percentage of income to assign to each specific budget category. After all, even the categories themselves will depend on your personal needs and wants. (Maybe you’re a frequent flyer with a budget line item for international travel, for instance, or a music aficionado who has to stash some cash for your growing vinyl collection.)

That said, there are some basic rules of thumb that can be used as a starting place and then customized for individual needs.

Example Budget Percentages

If you ask five financial experts what percentage of your money to allot to a given category, you’ll probably get five at least slightly different answers.

But here are some basic example budget percentages that many experts can, more or less, agree on:

•   Housing (rent or mortgage, as well as property tax and maintenance expenses): 25%-30%

•   Insurance (such as health insurance, auto insurance, and life insurance): 10%-25%

•   Food (including groceries, food delivery, and dining out): 10%-15%

•   Transportation (including gas, car maintenance, and public transportation): 10%-15%

•   Utilities (such as electricity, internet, and water): 5%-10%

•   Medical (including doctor/dentist visits and prescriptions): 5%-10%

•   Savings (including retirement): 10%-20%

•   Entertainment (movie nights, concerts, dinners out, etc): 5%-10%

•   Personal care (e.g., clothes, gym memberships, and haircuts): 5%-10%

•   Giving (gifts to others and charitable donations): 1%-10%

•   Miscellaneous (any expense you can’t fit in other categories, such as childcare or irregular expenses): 5%-10%

But again, this breakdown is just a starting point. You’re in charge of which expenses matter most to you!


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The 50/30/20 Rule

One popular form of proportional budgeting is the 50/30/20 budget rule, originally popularized in All Your Worth: The Ultimate Lifetime Money Plan, written by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

Per this rule, you’d divide up your income and spend 50% on needs (essential items) and 30% on wants (nonessential items); and commit 20% to savings and debt repayments beyond the minimum.

Of course, you’d then have to further extrapolate how much of that 50% would go to housing vs. food, for example, and how much of that 30% would go to dining out vs. streaming services.

Also, depending on your financial situation, the 20% allocated to savings and debt repayment may not be enough to meet both of those goals. Many financial planners recommend putting 15% of your pretax income towards retirement (including your contributions and any matching contributions from an employer), along with 5% of your monthly take-home pay for short-term savings goals (like building an emergency fund and going on vacation). That would use up the full 20%, leaving no room for aggressively paying down high-interest debt.

Which is to say, once again, that budget percentages are all about personalization. Which line items do you need to prioritize? Which can you minimize or cut?

How to Make Budget Percentages Work for You

Starting with the guidelines above, you can put budget percentages to work for you to help make your money map more effective … and also to ensure your money is going where you want it to go, rather than allowing it to end up where it will. Odds are, this exercise will be helpful, regardless of which of the different budgeting methods you use.

To start, determine all the categories that need to be accounted for — a list of everything you spend money on each and every month. This will include both necessary costs, like housing and food, as well as wants like entertainment costs, and important financial goals, like retirement savings and debt repayment.

Then you might start with fixed expenses (like your rent or mortgage payment, insurance payments, etc.) and determine what percentage of your overall monthly income they represent. That way, you’ll know how much you can allot for more flexible expenses, like groceries and entertainment.

This exercise will also reveal if you’re regularly overspending on a fixed expense. For instance, if you determine that your housing cost is closer to 50% of your budget than 30%, it might be time to consider getting a roommate, moving to a cheaper area, or boosting income by taking up a side hustle.

You may want to start by determining your budget percentages with your spending as is, and then rejigger the numbers to create a pie chart that will help you achieve your goals.

Maybe you want to spend less on streaming services and save more for travel or devote more of your income to repaying your student loans. It’s all possible with percentages.

Recommended: How to Make a Monthly Budget

The Takeaway

Slicing the pie into budget percentages makes it easier to meet financial goals and can be a major stress-reducer. When you know where your money is going, you don’t have to worry about where it all went. Allocating percentages to your spending and saving categories can help you better manage your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is the 70/20/10 rule money?

The 70/20/10 rule suggests dividing your income into three parts: 70% for living expenses (including essential and nonessential expenses), 20% for savings and investments, and 10% for debt repayment and charitable donations. This rule helps maintain a balanced budget, ensuring you cover essentials, build wealth, and manage debts while also giving back.

How do you determine budget percentages?

To determine budget percentages, first track your income and expenses. Next, categorize expenses into essentials, discretionary spending, and savings. You can then use a budgeting method like the 50/30/20 rule as a guideline. Just keep in mind that you may need to adjust the percentages based on your financial goals and circumstances.

What is the 50/20/30 rule for your money?

The 50/20/30 rule suggests dividing your income into three parts: 50% for necessities like housing and food, 20% for savings and debt repayment, and 30% for wants and discretionary spending. This rule simplifies budgeting, helping you prioritize essential expenses while saving and enjoying your money.

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