A household budget is an essential part of taking control of your personal finances. Your ideal household budget percentage will help you allocate income to necessities, recreation, and finally, savings.
Suppose you have never worked with a budget before or are adjusting your budget for specific financial goals. In that case, you may be curious about how to break down a budget into percentages.
There is an ideal breakdown that can work for many households!
Recommended Household Budget Percentages: The 50/30/20 Rule
Most experts will recommend a budget breakdown with the 50/30/20 rule.
This rule should be applied to taxed income and essentially split your total household income into three spending categories.
This is how the 50/30/20 breakdown will work:
50 Percent of Income Goes to Essentials
Use fifty percent of your take-home pay for essentials. This necessary spending includes things like:
- Housing costs (rent or Mortgage payment, property taxes, etc.)
- Living costs such as utilities
- food costs
- bills (a car payment, minimum debt payments, student loans, credit card payments, etc.)
- pet costs
- Insurance premiums, for example, life insurance, health insurance, car insurance, home insurance, etc.)
- transportation
Consider a debt calculator if you need help figuring out your payments for existing loans!
30 Percent of Income on Personal Spending
Thirty percent of your take-home pay should be under the category of recreational activities/ wants. This spending category includes things like:
- Eating out
- Shopping
- Travel
- Subscription services
- Entertainment
The Final 20 Percent Should Go to Savings
And finally, allocate twenty percent of your take-home household income should to saving for your money goals. Here are a few examples of what those goals may look like:
- Paying off credit card debt (and improving your credit score)
- Saving for a large purchase, for example, a house, car, vacation, etc.
- Saving for retirement
- Paying for a house
- Saving enough to start a business or to pursue a hobby.
Keep in mind that this rule considers that you have ongoing monthly income and three to six months of your living expenses in a savings account.
If you have a minimal amount saved, cut down on recreation and increase your money towards your financial goals.
How To Get Started With a Percentage Budget
The 50/30/20 rule can give you an idea of where your income should be going in a larger sense. However, to be successful with these budget percentages, you will have to create specifics based on your personal spending habits. For example, because fifty percent of your income with this rule will go to essentials like housing costs, you must know precisely how much those actual payments are.
The Basics of Creating a Budget and Budget Categories
If you have never made a Budget before, it isn’t too tricky. There are budgeting apps and spreadsheets that can help.
The first part of creating a budget involves tracking all of your income and setting goals for spending. Although most people start a budget from month to month, others find that budgeting in between pay periods makes the most sense.
With a budget set up, you can know exactly how much you are spending and on what. Staying within budget might be difficult at first, but it can get easier once you get into the swing of things.
It is vital to make sure your budget is realistic for your lifestyle. And that you are also taking the initiative to stay within it every month.
Why Should I Be Budgeting My Household Income?
You may be wondering why budgeting is helpful. Budgeting can be an incredible tool when trying to find financial stability. Being financial stable can come with several benefits:
Preparedness for an Emergency
Budgeting will help you establish a savings fund. And in case of an emergency or unexpected expense, you can be ready to take care of it.
Also, allocating enough for essentials can be a great way to prevent financial emergencies in the first place.
Financial Freedom and an Improved Quality of Life
Being financially stable and having financial freedom can impact the quality of your life for the better—your health, comfort, experiences, and goals are all largely dependent on finances.
Prevent Debt
A huge reason to budget and save is to prevent debt. When you have an accessible savings account, you won’t have to look to credit cards or other forms of debt.
Keep Your Goals on Track
With a proper savings account and a household budget, your money goals will be more likely to stay on track.
What if the Ideal Household Budget Percentage Breakdown Doesn’t Work Well For Me?
Although the 50/30/20 Rule is a highly recommended budget percentage breakdown, it may not be ideal for everyone.
For example, suppose your goal is to pay off debt or save as much as you can. In that case, you may want to add a higher percentage of your monthly income to that last budget category of financial goals.
Below are some other budgeting methods. Determine what is right for you based on your income, budget categories that you may have, housing costs, and personal spending habits:
The Envelope Budget — Save Cash for Each Budget Category
The envelope budgeting method involves creating budget categories and putting away cash into an envelope. From here, you only use the money that is in each envelope for each expense.
The Zero-Sum Budget — Spending All Your Income
The Zero-Sum budget involves calculating your entire income per month and allocating it to where you have a zero balance. The zero-sum budget can help make sure that you are being mindful of your spending.
The Pay-Yourself-First Budget — The Ultimate Way To Save
The pay-yourself-first budget involves allocating income towards financial goals before taking care of living expenses and paying off debt. This budgeting method can help prioritize long-term and short-term financial goals.
Adapting the Ideal Budget for Your Lifestyle
When it comes to budget percentages, experts recommend the 50/30/20 method. Although this percentage budget can work well for various households, it may not be the right option for you.
The ideal budget for your lifestyle will be a balance between spending and saving. And with all the different budgeting methods available, you can rest assured you will find a template to make a budget that works well for you.
And if you’re currently having a difficult time making your budget stretch to your next payday, there are options. Consider an online quick cash loan to help make ends meet!