If you wish to stay afloat in your personal finances, it is important to maintain a proper household budget. Without maintaining a proper household budget it will become very difficult to efficiently manage where your money is spent. In order to make sure you stay away from a misguided budget, you might want to follow a few general guidelines in order to get your budget right.
In Home Expenses
Housing expenses are the biggest and most costly part of any budget. Thing that you should make sure to include while writing out this budget are your:
- Home Insurance
- Home Modifications
- Utilities, such as, electricity/gas/water/trash/sewer/phone/cable and internet
Of course, the rent/mortgage is the biggest part of this budget and should account for about 25% of your budget. All in all, with everything listed included your budget expense here should be about 30-35% of your monthly income.
Living expenses is a very broad category to try to narrow down into a list. Many people will find themselves overspending in this general budget because there are so many different things to consider. In order to get your budget right, these expenses should only account for 20% of your monthly income. Things to include in this category are:
- Eating Out
- Clothing and other Personal Items
- Monthly Subscriptions
Budgeting your Transportation Expenses
Transportation is a necessity in order to run errands, get to work and travel. It is possible for this section of the budget to become very expensive, especially if you are making payments for your vehicle. While planning for your transportation budget, it is important you try to stay at or below 20% of your monthly income, in order to get your budget right you should account for your:
- Loan Payments
- Expenses on Gas
- Vehicle Insurance
- Maintenance and Repairs
- Costs for Parking
- Toll Roads
If you do not own your vehicle but are using a means of public transportation, you might wish to substitute the loan payments and gas expenses for the fares it costs to use whatever form of transportation you are using, whether it is bus, taxi or subway fares. If you are planning on buying another car in the future, get your budget right in the future by adding your savings as part of this category.
In order to get your budget right you will wish to make a means of saving some extra money each and every month. This is often a difficult task to accomplish, especially if you are dealing with debt. Once you have focused on and figured out the rest of your budgeting expenses, it is important to turn some of your focus onto your savings account. If you have debt, it is important to focus on paying that off before focusing too much on your savings account. Make sure to try to keep your debt repayments at a minimum of 15% of your overall budget.
Many people think that having a savings account is unimportant, especially while they are busy paying off other debts, this could not be more wrong. Including a savings system into your budget is very important, especially in dealing with unforeseen emergencies, as well as your investment savings. If you have other forms of investments other than your 401k plan, you should put that in your budget here. Make sure to only use about 10% of your savings plan in this category.
Free of Charge
If you have managed to stay out of debt and are simply looking at getting your budget right. You might want to consider using the 15% of your debt repayment budget and putting it into your savings budget, this would put you at saving 25% of your monthly income. Many people might consider 25% of your monthly income as savings might be too high. But if you think about it, it’s really not that high. Although it is promised, there is no guarantee of receiving your social security benefits after retiring and with the inflation rates the cost of living will only rise throughout the years. If you think about your savings, when you reach retirement, wouldn’t you rather have more than enough money, or not quite enough?
Breaking Down the Budget
Let me break it down for you so it is easier to get your budget right.
- 35% of your monthly income should go to housing costs
- 20% is for your everyday expenses
- 20% is for costs of transportation
- 15% is for Debt repayment
- 10% for savings
When deciding on how to get your budget right this categories should be your main point of focus. It is important to balance your ratio in each category, if you have debt and wish to pay it off more quickly, then you might want to consider taking a percentage out of one category and using it in your debt repayment category and so forth.