Budgeting is an important part of personal finance as it helps direct your money where to go. Without a budget it is easy to spend money on fast food and entertainment without thinking twice. However, this leads to financial stress and unnecessary debt if done frequently.
That being said, there are many different budgeting styles, such as breaking things down into percentages. Taking your income and dividing it into various parts of your financial life gives your money a purpose and direction, allowing you to track where every dollar goes.
Why Use Percentages to Budget?
Budgeting percentages is a system for allocating your monthly income to different expenses, and it can be a helpful tool for staying on track financially. Budgeting in percentages of your income can help you ensure that you’re not spending too much in one area or falling short in another. Monitoring your money in percentages makes it easier to monitor and adjust as time goes on.
You can also use budgeting percentages to help you more easily make adjustments if your income changes. For example, if you receive a raise at work, you may want to increase your savings rate or put some extra money towards debt repayment, since your primary expenses would remain consistent.
Common Budget Percentage Breakdowns
The 50/30/20 Budget Rule
✔️ Best for beginners with average expenses
One of the most common breakdowns, this budgeting method divides your money into three different categories.
- 50% – Needs
- 30% – Wants
- 20% – Savings
The 70/20/10 Budget Rule
✔️ Best for those with higher expenses or lower income
Very similarly, this method breaks down your spending into three categories with different definitions and ratios.
- 70% – Living Expenses
- 20% – Savings & Debt Repayment
- 10% – Flexible Spending
The 80/20 Budget Rule
✔️ Best for the financially disciplined with higher expenses
This is a very simplified method that should be reserved for the financially disciplined. This rule separates savings and expenses, but lacks additional structure.
- 80% – Essentials
- 20% – Non-essentials
The 60% Budget Rule
✔️ Best for those with lower fixed expenses
There are variations of the 60% budget method. The main concept is that 60% of your money should be allocated to fixed expenses. The remaining 40% can be used in several different methods, depending on the level of structure you need or want.
- 60% – Essential Fixed Expenses
- 40% – Savings, Variable Expenses, & Entertainment
Budgeting Percentages Calculator Google Sheet
We’ve put together a budget calculator in Google Sheets to help you get started with your percentage budgeting. Check it out to explore different breakdowns and even create your own!
You can also jump down to common budgeting breakdowns to learn more and calculate common methods.
How To Set Up Budget Percentages (Guidelines)
When planning percentages, most people start with the essentials like housing, food, and transportation. From there, you can allocate funds to other categories of expenses like entertainment, debt repayment, and savings.
It’s helpful to separate your “needs” and “wants” as a starting point for planning your percentages. For instance, regular bills like a car payment and insurance would be something you have very little wiggle room with (unless you planned on trading in your car), whereas budgeting areas like dining out, entertainment, or streaming subscriptions give you more flexibility.
Personal Budget Percentages
When it comes to budgeting, there’s no one-size-fits-all solution. Each individual is different in their own unique financial situation. That’s why it is so important to get a foundational understanding of your spending habits while budgeting.
Many credit cards, banks, or budgeting apps provide a breakdown of what categories you spend your money in. Reviewing these will give you a personalized view of where your money is going. You can then use this information as a baseline and look for areas you can optimize this breakdown to use your money more wisely.
You’ll need to tailor your budget to your specific circumstances. If you have a low income, for example, you can put a greater percentage towards essential expenses like housing and food. Conversely, if you have a high income, you may be able to afford to allocate more money towards discretionary expenses like travel or entertainment. Ultimately, the key is to find an approach that works for you and helps you meet your financial goals.
Household Budget Percentages
Things become a bit different if you’re budgeting for a household rather than just yourself. Depending on your situation, you may have a household budget to supplement your individual ones, rather than in place of them.
In a household budget, you not only need to break down percentages by expense category, but also by contributions of household members.
Common Budgeting Categories and Their Importance
So what should your personal or family budget percentages be? It’s a common question, and one that doesn’t have a simple answer. The answer depends on you or your household’s unique circumstances and spending habits. However, there are some general guidelines that can help you create a budget that meets your family’s needs.
The largest percentage of your budget will typically go towards housing. This includes mortgage or rent payments, property taxes, and utility bills. Transport costs are often the second largest category in your budget. This includes car payments, fuel, and public transport fares. Food is a common third largest category, followed by personal expenses such as clothing, healthcare, and entertainment. Savings and debt repayment should make up the final two categories in your budget.
Of course, these are only guidelines. You may need to adjust your budget percentages based on you or your family’s unique circumstances. For example, if you have high medical bills, you may need to allocate a larger portion of your budget to healthcare expenses. Likewise, if you’re trying to save for a major purchase, you may need to reduce your spending in other areas. By taking the time to understand your financial needs, you can create a budget that meets all of your specific requirements and goals.
What if I Stray From my Budget Rules?
When it comes to budgeting percentages, you need to hold yourself accountable. That’s the whole point of creating them, right?
However, it’s totally normal to stray from your budgeting percentages from time to time. Life happens – unexpected expenses, large purchases, or other deviations from your typical spending. The most important thing is monitoring these inconsistencies to determine if it’s an exception or a sign that you need to make a change.
Adjusting Your Budget Percentages
If you notice that you’ve either exceeded or fallen short of one of your budgeting category’s percent allocation, determine the reason why. We like to break these down into three options: exception, error, or warning sign.
- Exception – This would be something like a known deviation from your plan, and they’re not necessarily bad. Anything from a nice vacation, to an unexpected hospital bill could qualify. Just keep in mind this is not a consistent expense.
- Error – If you were incorrectly charged for something it could throw off your budget rules. In this case, you’ll want to address any issues with the vendor, bank, or credit card company and remove this from your budget to get a true picture of your spending.
- Warning Sign – If you notice you’ve consistently exceeded your budget in a certain area, that means it’s time for a change. It could either mean you need to modify your budget to accommodate your needs or that you need to be more strict in your spending.
Adapting your budget does not mean failure. It’s natural to modify your budget as your life changes.
Finding Your Ideal Budget Plan
There are several other budgeting methodologies in addition to these common percentage breakdowns. It will likely take some trial and error to determine what best fits your needs.
Use these percentage options as good starting points. Not only will they give you a plan of attack, but they are simple to understand and implement quickly.
A word of advice – don’t overthink it and start out simple. The more complicated it becomes, the less likely you will be to follow it. These methods are as simple as dividing them up into three categories and allocating your funds appropriately. Evolve your budgeting strategy over time as you grow your financial smarts.