Percent Of Income To Allocate To Each Expense Category

A common question that arises when itemizing your monthly expenses is, "what percent of my income should be allocated to each expense category?". Unfortunately, there is no "one size fits all" answer to this since everyone's circumstances are unique - a person may spend a higher percent for rent in New York City but have no car expenses, or live in an area where you spend much less for rent but then own a car (or two). However, while there's no need to over-analyze every last category, it's still a good idea to be aware of what percent of your income is consumed by the most significant categories. Keep in mind that a disproportionate amount spent in any one category directly affects how much can be spent in other categories. This is why a high level of debt, for example, can wreak havoc on the essential expenses (rent, food, utilities, etc.) in your monthly budget.

What follows is a list of recommended budget percentages, consolidated from two high profile personal finance sites, a bank, a budgeting software company, and a credit counseling organization. Most of these organizations listed a range for each category to account for different costs by location and circumstances, so the amounts listed below represent an average from all of the sources. The exact percentages appropriate for your circumstances may vary, but these amounts can be used as general target amounts with the goal being to stay within a fairly tight range.

Please Note -
1) Monthly net income (after tax income) of $5,000 was used as an example. The budget percentages still apply to other income levels, even though the budget dollar amounts would change.   
2) The percentages do not add up to 100% since they do not address every possible category, and to allow for variations within each category.

     Budget Category                 Recommended % Of            $5,000 Monthly
                                                   Net (after-tax) Income              Net Income

• Housing                                                  28%                                  $1,400 
  (rent, mortgage, real estate taxes)  
• Utilities                                                     5%                                   $    250
   (water, gas, electric, trash)
• Home maintenance/upkeep,                3%                                   $    150
   interior and exterior                             
• Food                                                        10%                                  $    500
• Insurance (home/auto (2 cars))            4%                                  $    200
• Savings (pre-tax*)                                  15%*                                $    750
   (can include employer matches)
• Savings (after-tax)                                    5%                                 $     250
• Transportation                                           5%                                 $    250  
   (gas, car maintenance, bus, etc.) 
• Clothing                                                      4%                                 $    200
• Personal Care (haircuts/nails, etc.)        3%                                 $    150
• Medical                                                       3%                                 $    150 
  (adjust for known medical needs)
• Entertainment                                            5%                                 $    250
• Miscellaneous (unplanned expenses)   5%                                 $    250
                                                       Total       80%                                $4,000
• All non-mortgage debt,                 All Remaining Funds!              $ 1,000  
  or extra savings                                                                                  $5,000                                                                                              
* Pre-tax savings (above) are not calculated in the totals since the totals reflect after-tax income. It was still important to include here as a reminder to have it taken out of your pre-tax wages.

You may decide to stray from these percentages, or heed some and not others, but what is most important is that you are thinking about it at all. Creating a realistic and itemized monthly budget is the foundation of any comprehensive financial plan. Having a conscious plan for managing your money, and understanding how it is being spent and saved, is the most productive way to reach your financial goals.

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