How Much to Budget: Do Household Budget Percentages Work

household budget percentagesThere are many times in life when we wish someone would just tell us what to do.  It would be a lot easier to pick a career if you were just told what to do.  It would be a lot easier to start and run and business if there was a nice little checklist handed to you.

While there are tools to help you narrow in on the right career for you and tools to help you with different parts of your business, you still have to do the hard work of sorting through it all and deciding what is best for you.

Knowing where to budget your money is no different.  While it would be really nice to have a nice little list of what to do with your household budget percentages, it does not always work that way.  Instead you need to do the work to figure out what the right budget percentages are for you.

Your household budget should match your life, and your preferences.  If you were to follow my budget it would not include things you like to spend money on.  Not only would your preferences not be like mine, but you probably don’t live where I do, have the same family size as I do or have an always sick dog like I do!

The only “rule” you should be following is that you do not spend more than you make.  All other budget decisions are up for debate.

So how do you figure out what the right budget percentages are for you?  Follow this three step process help get you started.

Review What Your Budget Percentages are Now:

Before you can decide what is right for you it helps to know where you are right now.  If you are not already doing a budget, gather your banking and credit card statements together from the last few months and begin to categorize your expenditures.

Once you have put it all together calculate your percentages for each of those categories.

How to Calculate a Percentage:

Percentage of Income = category dollars divided by Income multiplied by 100.  For example if your grocery budget is $300 and your income is $3,000 then your grocery budget is 10%.  300/3,000*100 = 10.

Compare Your Current Budget Percentages to Priorities & Goals:

Next you will want to determine if where you are actually spending your money is where you want to be spending your money.  Review your goals and what you value in life and see if you are spending money in the right places.  If you are not then it is time to make some changes.

For example: I value investing and vacations.  If my budget was instead filled home decorating and brand new cars then I would know that my budget was not in line with my goals and would need to be adjusted.

When you take this step to make sure you are spending where you want to spend it is easier to be happy in life, to stick to your budget and to actually achieve your financial goals.  It is really hard to stick to a budget that does not match what you value and want in life.

Start Working Towards Your Ideal Budget Percentages

Once you have determined what you want your percentages to look like it is time to start making changes to your budget to ensure that you are spending where you want to.  Now this might take time to make lifestyle changes and get other financial issues such as debt taken care of, but ultimately the goal is to work your way to your ideal percentage.

Every once in a while review your percentages to make sure that you are in line with what you want, and make changes as needed.

While it would be easier to hand you a set household budget percentage for your budget, it would not be a good budget.  Remember it is hard to stick with a budget when it is not set up for your life.  Take the time to do your budget and it will be easier to manage staying on it.

Need help learning how to budget?  Check out our How to Budget ebook.

Roger @ The Chicago Financial Planner says September 10, 2013

Nice post Andrea. Reminds me a lot of the types of analysis we did back in my corporate financial days.

    Andrea says September 10, 2013

    @ Roger – thank you! Nothing like good old analysis, I still enjoy it!

S. B. says September 19, 2013

Agreed. Much of the value of a good budget is seeing where the money actually goes. If I only cared about how much money I was saving/spending, I suppose I could just track my checking account balance each month. Having a good budget ensures that you are spending your money on things you truly value.

Krista says September 20, 2013

Thank you! Great analysis. I love the one “rule” that you have: don’t spend more than you make. The rest is up for debate!

    Andrea says September 20, 2013

    @Krista, Thank you!

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