Suggested Monthly Baseline Budget Percentages

There is no ‘one-size-fits-all’ when it comes to finances. Personal finance is personal and every persons’ budget is going to reflect their own individual needs, wants, and life situations. A graphic like this is not meant to shame people for the way they spend money, but rather to offer a starting point for trying to determine a balanced way of spending money that allows for needs to be met, wants to be included, and saving/investing (or debt paydown) to be prioritized.

For a digital download version of the graphic above, click here. For a student investigation and reflection activity based on the graphic above, click here.

Below is a summary of each category and what might be included in these areas of your budget to assist you in figuring out your percentages and ways you want to allocate your money.

Housing (25-30%)

Housing is a very challenging category in many budgets across the U.S.. House prices, rent, and inflation have been rising and historically high compared to household incomes, which makes it extremely challenging to keep housing costs within the suggested parameters, particularly for low-income individuals.

Things that should be included in your housing costs include:

• Mortgage payment or rent

• Property tax (usually included in a mortgage payment)

• Homeowners insurance (usually included in a mortgage payment)

• Furnishing

• House maintenance, cleaning, and repair

• Home upgrades

• Landscaping

• Home Owners Association (HOA) fees

Use something like a Total Cost of Housing Calculator to help you with determining whether it makes more sense for you to buy or rent at a moment in time.

Medical (2.5-10%)

This is such a challenging category for some households and barely a concern for others. Our age, genetics, lifestyle, and luck play a big role in how much gets allocated to medical expenses. If you have a chronic health condition, financially support a loved one’s care, rely on a medication or treatment, or seem particularly accident prone, you are going to need to have an increased allocation for this budget category, knowing that some months you may not use it and others may need a lot of use. Use FSA, HSA, or designated savings accounts to manage your health expenses if it makes sense for you.

Included in the medical expense category are:

• Copays for doctor visits

• Prescription costs

• Medical equipment needed

• In-home care or long term care

• Additional treatments or programs for preventative care

• Glasses and contacts

• Surgeries or hospital stays

Pets (0-5%)

Taking on the care and support of another living thing is not a decision to make lightly. You need to consider the total cost of of pet ownership, and not just the initial purchase price, to determine if it is something that you can fit into your budget without exceeding the recommended budget allowance or taking money away from another core need.

• Purchase price or adoption fees

• Vaccinations

• Spay or Neuter

• Food (what if they have special dietary needs?)

• Litter

• Toys and accessories

• Regular check-ups and vet visits

• Grooming

• Pet sitter or boarding cost during travel

• Unexpected medical expenses or home damage

Saving and Investing (10-20%)

I would also include debt paydown in this slice of the budget (as well as others such as a car payment in ‘transportation costs’ or a mortgage payment in ‘housing’) since that is also a big part of building your net worth. Saving and investing can include short, medium, and long term goals, whist also providing additional security for you from financial disasters.

Your saving and investing slice of your budget should include:

• Adding to your emergency fund (aiming for 3-6 months of expenses)

• Short term goals such as an upcoming purchase within the next 6 months

• Medium term goals such as a purchase within the next 6 month to 5 years.

• Long term goals for use more than 5 years from now.

• Sinking funds for annual expenses such as insurance premiums or HOA dues.

• Replacement and repair fund for your house or car

• Travel fund for vacations

• Wedding fund (for you or for attending weddings in the future)

• Gift fund (Christmas, birthdays, anniversaries, and Valentine’s Day all come at the same point each year. Save a little each month for those so it doesn’t break your budget when the time comes).

• Taxes if you make additional income and need to put aside taxes for when you file.

Money should be invested for goals that are generally more than 5 years away using accounts such as retirement accounts, brokerage accounts, education savings accounts, or health savings accounts. If you think you will need the money within the next 5 years, move the money to a savings account or switch to a low risk investment such as a Treasury Bond.

Gifts and Giving (5-10%)

Giving is a very personal budget category and will be different for every person. We can choose to give in ways that do not involve money such as with our time, skills, or expertise, but many people want to be able to give part of their money to those less fortunate than us or to support causes that we strongly believe in. For some religions, there is an culture of giving a percentage of your income to your religious organization to fund their work in the community and abroad.

Gifts are something that most of us can agree on. We live in a culture that has rituals around gift giving at different events in our lives and on the calendar. Many of us feel a desire (or pressure) to participate in these customs, but that can be very expensive at times and force us into very challenging budget situations if we are not prepared ahead of time. This category can be shared with the ‘Investing and Saving’ category mentioned above, but I know that I also will typically have some sort of event each month that requires a gift (especially as my son has started school and is getting regular birthday invitations), so I tend to include a section in my budget for accommodating that.

Things to think about in your Gifts and Giving Budget include:

• Donations to charity

• Tithing

• Being generous to those in need with money, gift cards, food, clothing, etc.

• Major holidays such as Christmas, Hannukah, Kwanzaa, Diwali, Valentine’s Day, Easter, Father’s and Mother’s Day, Halloween, etc.

• Personal life events such as birthdays, anniversaries, weddings, baby showers, graduations, house warming, retirement, bridal showers, bachelor or bachelorette parties, etc.

• General life gifting such as for a romantic gesture or to support a friend.

Since this is a category that can change each month, use something like a dedicated savings account to house the money for this fund, a budgeting app or spreadsheet, or even a cash envelope for tracking how much you have left.

Food (10-15%)

Food is another one of the big three (with housing and transportation) as a place where we tend to spend a larger percentage of our net pay. It’s also a category that gets very impacted by inflation and the cost of living in an area. Food can also be disproportionally more expensive for lower income earners than high income earners since there is a limit to how much we can/need to eat an once that is covered, we don’t need to keep allocating more money to it as our income grows.

The type of food we buy is also a very personal decision. Choosing to eat fresh, organic, and healthy is typically more expensive than the more processed and convenient alternatives. The tradeoff of cheaper food costs now however can lead to higher medical costs in the future, so that is a factor to consider and you may be able to shrink your medical budget a little to increase your allocation for food if you are attempting to prevent medical issues in the future through the food you eat. Having a meal plan and thinking intentionally about the food you want to eat each week can help to reduce costs and waste.

Entertainment can also have a crossover with food since many forms of entertainment involve food as well. Think of eating out with friends, going on a date, or hosting a party. Just make sure those kinds of costs are being included in your budget somewhere and not falling in between the cracks.

Many of us shop at a grocery store which also carries items such as household products, gifts, clothing, and more. Make sure you are separating out those costs or allocating money from those budget categories to your Food Budget if you are going to be subtracting your entire grocery store receipt for this area.

Things to consider in your food budget:

• Groceries

• Take out and restaurants

• Food delivery or grocery shopper app fees

• Meal prep services

• Snacks

• Meal plans in college or work

• Supplements

• Food gifts and parties

Utilities (5-10%)

This is another category that is disproportionally more expensive for lower income households. We don’t typically have to pay more for heating, electricity, or gas as our incomes rise (unless we inflate our lives with bigger houses) so we can expect this category to take up a lower percentage of our budgets as we increase our take-home pay. You could also choose to lump some of this category into housing which would allow you to raise the percentage of your income going towards housing, but I like to keep it separate to see how our money is being spent and where there is room to make improvements or cut spending.

While services such as cell phones and internet can be included in this budget slice, it’s important to differentiate between what is a need (included in this slice) and what is a want or luxury (to be included in other slices, such as entertainment or subscriptions)

Things to include in your utility budget:

• Water

• Gas

• Electricity

• Sewer

• Oil

• Internet

• Cell phone plan

• Home security

Transportation (5-15%)

The last of the big three (with housing and food) where we tend to spend a larger section of our budget pie. There are many modes of transportation and many levels of luxury and utility within those. Like housing and food, this is an easy category to overspend in and one of the most important to make conscious spending decisions in before being locked in to a situation for several years. Consider your transportation options and where you need to go before making the decision to buy a car. If you do need to buy a car, be sure to consider your needs, wants, and budget before beginning the search for a vehicle. The total cost of car ownership is another important factor to consider since that will have a lasting impact on your budget, long after you have purchased the vehicle.

Things to include in your transportation budget include:

• Purchase price and/or car payment

• Monthly expected gas cost

• Car insurance (can be included here or in the insurance category)

• Maintenance and repair

• Parking fees

• Tolls

• Tags and title

• Inspection fees

• Emissions test

• Replacement tires or seasonal tires

• Ride-share or taxi costs

• Public transit passes or ticket costs

Clothing (1-5%)

Most months I can get away with a 0% clothing budget, but I do acknowledge that not everyone is like me where clothing is a low priority item, and I can afford to shop for clothes once or twice a year when extra income comes in from side hustles. Clothing, like food, has tiers based on our needs and wants. What we need to survive is quite basic, so once those needs are met each new piece of clothing has to be evaluated for the utility and desire it fulfils. If clothing and style is important to you, then this slice of your budget may be larger at the expense of other areas such as a larger house, fancier car, or high-quality food. There are lots of fun ways to save on clothing and be frugal without being cheap, and there are ways to spend more now with the idea of getting higher quality items that will last longer and lower your clothing budget needs down the road.

Things to consider for your clothing budget:

• Clothing that requires replacing due to wear and tear such as everyday footwear

• Work attire

• Sports and workout equipment and clothing/accessories

• Seasonal clothing needs

• Clothing for travel

• Formal wear for events such as weddings

If you are like me and you only buy clothes a couple of times per year, consider setting up a sinking fund in a savings account where you put aside money each money for the months when you binge buying clothes.

Personal Care and Hygiene (2.5-5%)

Like most categories, this slice of our budgets has definite needs and then a spectrum of wants. Figuring out which are which is not a simple job and is often up for debate. This category is dedicated towards your personal health and wellness. It includes core products and services as well as more luxury items that can have very positive impacts on aspects of our health. There can be an overlap here with your medical budget depending on the service (dental visits come to mind), so make sure you are allocating items to one section or combining them together within your budget.

Things to include in this section of your budget:

• Oral care equipment and products

• Hair care products and services

• Skin care products and services

• Make-up

• Shower products

• Massages

• Feminine hygiene products

Insurance (5-10%)

Depending on your age, employment situation, family size, and health status, this could be a small section of your budget or a large one. Many employers include health and dental insurance benefits as well as some others such as life insurance or disability insurance, whilst self-employed individuals typically have to sort all of this out for themselves.

Some categories may already be absorbing parts of your insurance costs such as homeowners or renters insurance, and auto insurance, but there are others that you will want to include in this section of your budget. See this video for a breakdown of what insurance is, what you need, and how to shop for it.

Insurance you need and should consider for this section of your budget:

• Health

• Dental

• Life

• Auto

• Short term disability

• Long term disability

• Homeowners

• Renters

• Long term care

• Umbrella

• Travel

• Jewelry

Subscriptions (0-5%)

Subscriptions are services for which you pay a regular fee to avail of as opposed to a single purchase. While there are some subscriptions that can be considered a need or close to it (I pay for a MailChimp subscription to manage my website and email newsletter, or Canva for graphic design), most will probably fall into the category of “I could live without it”. One of the easiest ways to make wins in your budget is to check on all the subscriptions you are currently signed up for and see if there are any that you are not using or could stop paying for until you actually need it.

Subscriptions that may already be in your budget or should be considered are:

• Phone apps

• TV streaming services

• Gaming

• Music

• Hobbies

• Kids entertainment

• Meal prep

• Amazon Prime

• Gym membership

• Fitness or sports classes

• Cloud storage

• Storage units

• Magazines or newspapers

• Credit card memberships

Entertainment and Travel (2.5-10%)

Entertainment is such a broad category and often it will overlap with others (Food, Subscriptions, Transportation), but this is the category for all things fun and leisure that doesn’t get put into the others. Traveling is not something that every person wants to do, but if you do, it’s going to require some conscious budgeting to fit it in. You may be including it in your Saving and Investing slice already, but if not it’s got to come from here.

Things to include in this section for entertainment:

• Events with friends

• Concerts

• Movie theatres

• Hobbies

• Sports

• Gambling

• Family events

• Gaming purchases

• Phone app purchases

• Toys

• Entry fees for parks, museums, monuments

• Dining out (if not in food budget)

• Games and Puzzles

• Plants

Things to include in this section for travel:

• Travel

• Accommodation

• Food

• Entertainment on the trip

Conclusion

Budgeting is extremely personal and all of the suggested percentages are just starting points for assessing your own spending and planning for the future to meet your goals. You may need more in some categories and less in others, and that is totally fine. The key is to maintain the essential equation of income needs to be greater than or equal to all expenses and saving. Increased spending in one area must come at the expense of another to avoid needing to rely on debt.