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.
Another reason some of these percentages may be important - for those who may be applying for a mortgage at
some point, banks like to make sure that the loan amount is no more than ~28% of your income. They consider that to be the top end of their "risk threshold" for being able to consistently pay the monthly mortgage amount, and if the loan amount is more than that, you may have trouble getting the loan approved.
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 exactly 100% since they do not address every possible category, and to
allow for variations within each category.
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.