Budgeting is about more than figuring out what dollar amount to assign to each expense you face monthly. It’s also about figuring out what percentage of your income should be allotted for each purpose.
Budget percentages allow a well-laid-out financial plan to more easily scale with increased (or decreased) earnings. They can also help make it really clear where your money is going: You only have 100% to work with, after all, so if one expense is eating up 50%, that might be a good place to start looking at cuts.
Of course, as is true for many other matters of personal finance, there’s no single, set algorithm to create perfect budget percentages. Rather, understanding this concept is a helpful way to finesse and personalize your budget to best fit your specific circumstances and needs.
No matter which kind of budgeting method you choose, budgeting percentages can help you get the most use out of your financial roadmap. Here’s how to get started on building a well-balanced budget … for you.
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.
Take groceries. The USDA lists the average cost of a nutritious food plan every month, and those costs can range considerably. A couple 50 and younger might spend as little as $404 a month on food at home or as much as $804. (That’s right: the cost of the “liberal plan” is nearly double that of the “thrifty plan,” according to the USDA.)
Whether either of those figures sounds reasonable may depend on what you earn, but $404 or even $643, the “moderate-cost plan,” could be a lot to spend on groceries if it represents 30% of your income.
Some experts recommend spending as little as 10% of your budget on food. Time to clip some coupons (or perhaps make a job change—a career coach could help with that)!
By parsing each expense as a proportion of the whole, it’s easy to figure out how much you have to spend in each budget category if you start earning more.
Budget percentages also help ensure you have enough money left over to take care of other expenses (in this case, 90% for nonfood expenses).
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—will get some.
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Basics of Budgeting Percentages
As mentioned, 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, including property tax and other expenses): 25%
• Insurance (such as health insurance, auto insurance, and life insurance): 10%
• Groceries: 10%
• Transportation (including gas, parking, and maintenance): 10%
• Utilities (such as electricity, internet, and water): 10%
• Savings (including retirement): 10%
• Entertainment (movie nights, dinners out, etc): 10%
• Clothing: 5%
• Miscellaneous: 10%
That “miscellaneous” category gives you the opportunity to devote more cash to categories that you consider worth splurging on, get busy repaying debt, or make charitable donations.
But again, this breakdown is just a starting point. You’re in charge of which expenses matter most to you!
The 50/30/20 Rule
One popular form of proportional budgeting is the 50/30/20 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, or essential items; and 30% on wants, or nonessential items; and commit 20% to savings.
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.
In Warren’s estimation, that 20% would also cover the money being put toward debt repayment, but of course, this isn’t the most aggressive debt-repayment strategy available—and a fifth of your income might not be enough to meet both retirement savings goals and debt repayment goals.
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 and 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.
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.
Each and every expense must be represented for your budget percentages to truly add up to 100%.
Then you can 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 gas.
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 or taking up a side hustle.
You may want to start by determining your budget percentages with your spending as is, and then create an aspirational pie chart—that is, set your #goals.
Maybe you want to spend less on groceries 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
Slicing the pie into budget percentages makes it easier to meet financial goals and—perhaps best of all—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.
Although there are many budgeting and cash management programs to choose from, SoFi Checking and Savings® allows a bird’s-eye view of your finances and includes the “vaults” feature, which makes it easy to set aside cash for specific savings goals.
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