There are many rules of thumbs for budgeting and obtaining greater financial success. I have taken those rules and pretty much summed them up in one blog, so that you can have a basic guide to help manage your finances.
Rent/Mortgage:
One rule of thumb for budgeting rent is to apply no more than 30% of your monthly gross income (before taxes) to your rent. Back in 1981 the government found that those who paid rent of less than 30% of their income were less cost burdened helping to establish this rule.
When seeking housing you would calculate 30% of your income and seek out housing that is less than that. So, if your monthly gross income is $3000, 30% of that will be $900; you would then search for housing that allows you to pay no more than $900 a month in rent. This can also be applied to a mortgage as well. I've been implementing this rule for my own rent payments, and it has helped tremendously.
Food/Groceries:
This rule of thumb suggests that 15% of your monthly net income (after taxes) is applied towards food. This is another rule that has worked well for me. My household of 2 only spends about 8% on groceries but if I add lunch at work and occasional eating out it still tends to stay below that 15% range. While my household only needs 8% for groceries, larger households may need to utilize more, you can make the adjustment to work for you, but having this 15% guide can help in budgeting those food expenses.
Utilities:
This rule states that your utility cost should equal less that 10% of your monthly gross income. This includes electricity, phone bill, internet, gas, water, and trash.
Transportation:
This rule advises that no more than 10% of your net income is applied towards transportation. This rule applies to a car notes, so if your monthly net income is $3000, 10% of that is $300. When shopping for a vehicle you would look for a car note that requires monthly payments of less than $300. If taking public transportation, the same rule can still apply except you may save much more. This rule also suggests that no more than 20% of your income should be applied towards your car payment and car insurance combined. Once the car note is paid off the 10% can then be utilized for gas and insurance only.
Saving:
This rule of thumb states that 20% of your income should be applied towards savings. While saving can be challenging, if you were to stick to the previous rules, you may find it a little less challenging to save. (Rather it's saving for emergencies or retirement, any and all types of savings would all be included in this 20%)
Spending:
If you were to apply all the previous rules of thumbs, you would have 15% left to apply towards spending. If you read my spending blog you would find that 15% is also my own personal rule for spending; and I love it because it gives me more cash in my pockets to spend without touching my savings. With the right budget, you can pay all your expenses while still spending comfortably.
Debt:
If you have debt, you can always adjust the savings or spending portion until your debt is paid off. For savings, you may choose to temporarily save 10% of your income and apply 10% towards debt. For the spending portion you may choose to spend 10% and apply 5% towards debt. You can also temporarily apply a portion of both your savings and spending towards paying off debt. The goal is that if you have debt, it shouldn't affect your monthly expenses, but instead only adjust your savings and spending until the debt is paid off.
Balanced Budgets are Helpful
Having a balanced budget is always helpful for reaching financial goals, hopefully these rules give you something to think about and can help you in creating a more balanced budget and living a financially successful life.
Feel free to share your thoughts in the comments and let me know if this was a helpful guide. Feel free to always do more research on what these rules mean. If you haven't already don't forget to subscribe!
Discipline is Key🗝️
Yes! It's so good to think about how much you are allocating to each category and then set goals and standards. I'm currently allocating less than 15% to housing and utilities but food and fitness...well that's another story lol
Oh, this is really good that first one though with the 30% of the rent or mortgage that’s kind of hard lol but all that means is we just gotta bring some more income in to make sure everything balances out. Such a great read, especially the part on savings.
Love this!! Never even thought about 10% for utility.