One thing you can say about Dave Ramsey is that he keeps things simple.
His baby steps are easy to grasp. As are his other rules, such as how much to spend on a car. (Answer: the total value of your vehicles shouldn’t exceed half of your income.)
So, what does Dave say about recommended household budget percentages?
And what does his ideal household budget look like?
Let’s find out…
Dave Ramsey’s Recommended Household Budget Percentages
Ramsey’s 11 budget categories, along with the percentages, are:
- Giving — 10%
- Saving — 10%
- Food — 10% to 15%
- Utilities — 5% to 10%
- Housing costs — 25%
- Transportation — 10%
- Health — 5% to 10%
- Insurance — 10% to 25%
- Recreation — 5% to 10%
- Personal spending — 5% to 10%
- Miscellaneous — 5% to 10%
In visual form, which you can save via Pinterest, you get:
Here’s a breakdown of each category, based on Dave Ramsey’s advice:
- Giving — Ramsey recommends giving 10% of your monthly income to worthy causes.
- Saving — Saving 10% of your income for retirement, which ideally is within a 401(k) or IRA.
- Food — Includes both grocery shopping and eating out.
- Utilities — Cell phone, cable, internet, gas, and electricity.
- Housing costs — Rent or mortgage payment, along with property tax, home or renters insurance, home maintenance, HOA fees, and PMI.
- Transportation — Any and all transportation costs, including public transportation, car insurance, oil changes, car payment, gas, DMV fees, and parking.
- Health — Medical and health care bills (not including health insurance premiums) such as co-pays for doctor visits, prescriptions, and dental care.
- Insurance — Life insurance, health insurance, and disability insurance. Auto insurance and home insurance is placed within transportation and housing categories.
- Recreation — This is your fun money. Any lifestyle expenses, such as gym memberships or kids’ activities, as well as entertainment expenses like Netflix, Hulu, sporting events, concert tickets, babysitters, and travel.
- Personal spending — Personal care, haircuts, Amazon purchases, clothes, shoes, home furnishings, home decor, etc.
- Miscellaneous — The “stuff you forgot to budget for” category.
What about debt? One category missing from the list above is personal debt. Ramsey recommends putting as much as possible towards your non-mortgage debt, such as student loan payments, personal loans, or credit card bills.
That requires minimizing your expenses in other categories (as well as making more money) and putting everything you can into paying down your debt. Also, according to Ramsey, you shouldn’t start saving for retirement until you have a fully-funded three-month emergency fund.
Another note is that these spending categories are just one way to organize your budget. There are other budgeting categories you may want to include, and other ways you may want to classify your expenses. And some people’s expenses just might not fit within these guidelines, such as school supplies if you have children or alimony if you’re obligated to pay it.
Using myself as an example: I prefer to save much more than 10% of my income. As I’m self-employed, my health insurance costs are very high. And with a child in preschool, so are my education costs. On the other hand, my transportation expenses are much lower than average since I work from home and have two paid-off cars.
The specifics of your personal financial situation don’t have to match up perfectly with this chart. What’s important is developing an individualized budget that works for you and your family.
Related: How to Set Financial Goals That Actually Make You Happy (Free Printable Workbook)
Dave Ramsey’s Household Budget Percentages Analysis
The idea is to use these budgeting categories as a way to analyze your current monthly budget.
As such, the first step to making these budgeting categories useful is to compare them with your actual current spending. The emphasis is on actual because research shows there is a vast difference between what we say and what we do.
This is called social desirability bias. It means that we tend to answer questions about ourselves in ways that are socially desirable. A fun exercise to see how this bias works in practice is to estimate your current monthly expenses, then compare that estimate to the actual data. For a quicker experiment, try just one category. For example, compare what you think you spent on eating out last month to what you actually spent at restaurants.
Simple ways to get this data include:
- Look at last month’s credit card statement(s) and insert the data into a good budget template.
- Use a good, free budgeting app (more below), and have the app automatically download the past transactions.
The goal is to get the actual results, showing exactly what you spent down to the dollar.
The Best Budgeting Apps for Tracking & Categorizing Your Expenses
Budgeting apps make tracking and categorizing expenses effortless. They’ll save you time, and when used right they can even save you money. There are a lot of apps available for both iPhone and Android phones, here are three worth checking out:
- TrueBill Budget & Bill Tracker. TrueBill, which is both a budget tracker and a bill cutting service, has a very clean and user-friendly budgeting app. The budgeting app is 100% free, syncs your transaction automatically, and also allows you to track upcoming bills. See our Truebill review.
- Personal Capital. This app is ideal for investors, offering a slew of really useful and free tools to help you optimize your investment portfolio. Their cash flow tool, which is also free and syncs automatically, is simple and effective. But perhaps my favorite aspect of Personal Capital is that you get a free $20 gift Amazon card for using this link and syncing at least one investment account.
- Trim Financial. For those who have tried budgeting apps in the past and found that they didn’t seem to help, consider signing up for Trim. Trim has a feature where you can set a budget for the month, and it will then update you via text message on your progress. See our full Trim review.
- EveryDollar. Dave Ramsey has the EveryDollar budgeting app. The app itself has great reviews. However, in order to sync your transactions automatically, you have to pay for the pro version (which costs $99 a year).
How to Analyze Your Monthly Budget (and Create Your Own)
Once you have this data, you can then use it to make good financial decisions. Use these questions as a starting point:
- Which areas of my current budget are within the recommended guidelines?
- Which areas of my current budget are outside the guidelines?
- In which categories are my current spending habits fixed?
- In which categories is my spending flexible or variable?
- Will any categories increase in the future, and why?
- Will any categories decrease, and how?
- Which categories do I want to increase?
- Which categories do I want to decrease?
If you take the time to answer these questions, make sure it’s not wasted effort. Follow through by identifying three to five goals you want to achieve based on your insights.
- Lower my eating-out costs to $75 per month
- Save at least 10% of my gross monthly income
- Become debt free in 18 months
- Reduce my cost of living to 25% of my total take-home pay
Dave Ramsey’s Recommended Budgeting System
Having a budget is one thing, but sticking to a budget is a whole different ballgame. That’s where Dave Ramsey’s recommended budgeting system comes into play.
To help with the discipline required, Ramsey suggests using an allocated spending plan. To summarize, an allocated spending plan is a budget that allocates expenses by pay period.
For example, if you’re paid on the 1st and 15th of each month, you’ll have a budget for each period:
- The 1st through the 14th of the month
- The 15th through the end of the month
From there, you’ll create a zero-based budget. That means every dollar earned within that timeframe will be allocated. There are some finer details to this method, so use this step-by-step guide to begin.
Other Budgeting Methods
The allocated spending plan works well to reduce your household living expenses. But it can be quite tedious — especially if it’s your first time budgeting.
If that’s the case, two simpler budgeting methods include:
The reverse budgeting method
To put it into simple terms, reverse budgeting means paying yourself first. You do this so that you can fund the most important goals you have in your life. After that, any money that’s left over once your bills are paid can be spent on whatever you please.
The 50-20-30 budgeting method
The 50/20/30 method is a popular budgeting tool that allows your finances to be easily broken down into three different sections.
The method recommends the following:
- Use 50% of the money you earn for necessary expenses, such as housing and transportation
- Use 20% of your income to gain financial traction
- Lastly, 30% of your income can be used on anything you want
The Envelope Budgeting Method
If you’re looking to save money — as in drastically reducing your expenses — the budgeting method I would try is the envelope system, also known as the envelope budgeting method.
The envelop system is a cash-only budgeting method. How it works is you:
- Determine your household income
- Decide on a budget amount for each category
- Create envelopes for each budgeting category
- Stuff your envelopes with cash according to their budgeted amount
- Spend only cash, knowing that you can only spend what’s inside your envelopes
Yes, this budgeting method is a bit more tedious. However, it really works to change behavior. If that sounds like too much, consider just using the envelope system for the two or three budgeting categories that always seem to get out of whack.
Summary: Household Budget Percentages
We all know that personal budgeting gets a bad rap. But if you want to improve your financial situation or need money ASAP, it’s one of the most important things you can do.
Budgets tell your money where to go. Done right, they give you more freedom with your personal finances, not less.
That’s because they give you the power to decide ahead of time what’s important for you. A good budget will help you better allocate your money towards both your short-term and long-term goals, help you identify areas where you can cut wasteful and unnecessary spending, and help ensure you’re saving and investing for a stable and prosperous future.
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