American Dream

What Should Your Household Budget Look Like?

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Many people fail to see the value of setting up a household budget. After all, creating a budget and then being faced with an unexpected repair or winter-heavy heating bill can be frustrating.

You can, however, budget yourself to prepare for these “surprise” bills. Financial experts have devised a guide of what percentage of your income to allocate to certain finances. These numbers were created to help keep the average household’s income flowing in the right direction, and to limit stress. To take advantage of this, you’ll need to sit down and figure out what you’re currently spending, and adjust those numbers as needed.

Figure Out Your Current Household Budget
In order to get started, you’ll need to determine your current spending by category. Then you’ll need to calculate what percentage of your take-home household income each category takes up. Doing this exercise will paint a clear picture of which categories you’re spending too much on, which likely contributes to financial stress.

  • Monitor Spending: The easiest way to gather information on where you’re spending money is through a personal finance app or service, such as You can also figure out your spending manually by going through your account statements for the last several months and categorizing your expenses by hand.
  • Calculate Percentages: Next, you’ll need to figure out the percentage of your take-home pay that each spending category takes up. Since “savings” is a category, take the amount deposited into your checking account each month and add back in any 401(k) contributions you’ve made. Once you have this number, take the total of each category and divide it by your total take-home pay. For example, if you take home $3,000 per month, and you spend an average of $500 on groceries per month, then you’re spending 16.66 percent of your monthly income on food.

Compare Your Percentages
After you calculate all the percentages, you can then compare the numbers to what experts recommend spending per category. In his book “The Total Money Makeover,” Dave Ramsey suggests the following numbers:

  • Charitable Gifts: 10-15 percent
  • Savings: 5-10 percent
  • Housing: 25-35 percent
  • Utilities: 5-10 percent
  • Transportation: 10-15 percent
  • Food: 5-15 percent
  • Clothing: 2-7 percent
  • Medical/Health: 5-10 percent
  • Personal: 5-10 percent
  • Recreation: 5-10 percent
  • Debt: 5-10 percent

So, how do your categories add up? Keep in mind that if you choose to follow the highest recommended percentage in each category, you’ll be spending 147 percent of your income. Make sure your total spending — including savings — is at or under 100 percent.

It’s likely that at least one category is glaringly out of balance. Now that you’re equipped with the information you need, you can make any necessary adjustments. You’ll need to spend less on categories you’re spending too much on, and if that’s not possible, you’ll need to earn more to lower the percentages. Work on finding a balance, and remember to adjust accordingly as your lifestyle and needs change.