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 house you can afford).
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 uses a combination of income percentages and set figures drawn from national income averages to determine his recommendations. Additionally, his recommended budgeting percentages differ based on factors such as the size of your household, whether you need childcare, where you are in the baby steps process and other variables.
In other words, there’s no one size fits all budget.
But that doesn’t mean you can’t learn from his general guidelines.
Here are Ramsey’s ideal percentages across his 12 budget categories, using the example of a family of four with take-home pay of $6,000 per month who needs part-time childcare, has employer-paid health insurance, and has paid off their non-mortgage debt:
- Housing costs: 25%
- Saving: 15%
- Food: 12%
- Childcare: 12%
- Giving: 10%
- Miscellaneous: 5%
- Insurance: 4%
- Utilities: 4%
- Personal spending: 4%
- Lifestyle and entertainment: 4%
- Transportation: 3%
- Health: 2%
Dave Ramsey’s Budget Categories Explained
Of course, your circumstances may vary from this example, which is why you shouldn’t follow Ramsey’s recommendations blindly. While he has more information on his site about determining your own ideal budgeting percentages, here’s a breakdown of how to approach each category.
Housing: Ramsey uses a strict percentage limit here, stating that your total housing payment shouldn’t exceed 25% of your take-home pay. This figure is the same whether you’re renting or paying on a mortgage. For homeowners, Ramsey suggests a 15-year fixed mortgage with 10% to 20% down.
Saving: The end goal is to save 15% of your gross income for retirement. But depending on where you’re at in Ramsey’s baby steps framework, your savings might be going towards building your emergency fund or your debt snowball (paying off non-mortgage debt). Once you’ve saved a three-month emergency fund, you can start saving for retirement and other bigger purchases. Note that if you’re in debt-payoff mode, Ramsey says you should save as much as you can — even if that figure exceeds 15%.
Food: Ramsey suggests using the following national averages from the U.S. Bureau of Labor Statistics to help determine your desired budgeting percentages for groceries. He suggests $267 – $315 for singles, $640 for couples, and $928 to $1,109 for a family of four (noting that these numbers can vary based on dietary restrictions and lifestyle choices).
Childcare: According to Ramsey, Childcare expenses — which can range from $10,700 to $15,900 per year per child — should be budgeted in an additional and dedicated category to cover the costs of parents being able to work. Babysitting expenses for one-off occasions like date nights should be budgeted within the entertainment category instead.
Giving: Ramsey recommends tithing 10% of your take-home pay to your church, charities or worthy causes, even if you’re in debt. If you choose not to tithe at this rate, you can reallocate the 10% elsewhere in your budget.
Miscellaneous: This category should be around 5% of your take-home pay and can be used for non-emergency expenses during the month, such as a gift for a family or friend. If you have any leftover funds in the miscellaneous category, you can put them toward your financial goals.
Insurance: For Ramsey, the four essential types of insurance you want to budget for are health, home, auto and term life. Ramsey also suggests considering identity theft protection, long-term disability insurance, umbrella/liability insurance (if you have a net worth of at least $500,000), and long-term care insurance (if you’re over 60).
Utilities: Ramsey suggests using the national average of $218 per month on natural gas, electricity and water to help determine your allocation here. Ramsey doesn’t assign internet or phone bills to any budgeting category; utilities would be the most logical classification for these costs and would increase the average to roughly $400 per month.
Lifestyle and entertainment: The average American household spends $2,912 per year on entertainment, or about $243 a month. However, if you’re living paycheck to paycheck, Ramsey advises cutting back in this category for the time being.
Transportation: When it comes to fuel, maintenance and public transportation, national figures show that the average household spends $151 per month. However, this figure is low because it does not include car payments. Since Ramsey views car payments as non-mortgage debt, those payments should be allocated into the savings category (with the goal of paying off the loan(s) using a debt snowball).
Health: Ramsey uses the national average of $86 per month on medical services and supplies to budget for this category, pointing out that these numbers can vary drastically depending on the household and its month-to-month health circumstances.
Additional Notes on Debt and Savings
Ramsey recommends putting as much of your income as possible towards your non-mortgage debt, such as car payments, student loans, personal loans and credit card bills.
That requires minimizing your expenses in other categories. Ramsey also says that 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 might not fit within these guidelines, such as kids’ activities 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. 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.
Dave Ramsey’s Household Budget Percentages Analyzed
The idea is to use these budgeting categories as a way to analyze and then optimize your current monthly budget.
As such, the first step to making these budgeting categories and national averages 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, and 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, write down what you think you spent on eating out last month and then compare it to what you actually spent at restaurants.
Simple ways to get your spending data include:
- Look at last month’s credit card statements and insert the data into a good budget template.
- Use a good, free budgeting app, and have the app automatically download your past transactions. Ramsey offers the EveryDollar budgeting app, which is a great option with solid user reviews. However, in order to sync your transactions automatically, you have to pay for the pro version (which costs $99 per year).
The goal of this exercise is to get your actual data so that you can see what you spent down to the dollar.
Free budgeting app recommendation: Rocket Money Budget & Bill Tracker is both a budgeting app and a bill-cutting service. The budgeting aspect is 100% free to use, syncs your transactions automatically, and allows you to track upcoming bills. Learn more about how it works in our Rocket Money review.
How to Analyze Your Monthly Budget (and Create One That Works)
Once you have your spending data, you can use it to make better financial decisions.
Use these questions as a starting point:
- Which areas of your current budget are within the recommended guidelines?
- Which areas of your current budget are outside the guidelines?
- In which categories are your current spending habits fixed?
- In which categories are your current spending habits flexible or variable?
- Will any categories increase in the future, and why?
- Will any categories decrease, and how?
- Which categories do you want to increase?
- Which categories do you 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.
- Reduce your spending at restaurants to 50% of its current level.
- Save at least 10% of your net monthly income.
- Reduce your cost of living to 25% of your net income.
- Become debt-free in 18 months.
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 of those two pay periods:
- 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” in which every dollar you earn is allocated to a specific category.
There are some finer details to this budget method, so use this step-by-step guide to begin.
Other Budgeting Methods
An 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, three simpler budgeting methods include:
Learn about these and other options in our list of seven popular budgeting methods.
The Reverse Budgeting Method
Reverse budgeting — also known as the “pay yourself first” method — is a budgeting strategy that prioritizes saving for goals (such as retirement) over fixed and variable expenses.
The idea is to identify your savings goals, decide how much total money you need to save in order to reach them, and then calculate how much money you can afford to contribute each month. Once your goals are set, you treat the amount you’ve committed to saving as a bill that must be paid; in other words, you make payments toward your goals before spending money on anything else.
The benefits of reverse budgeting include low maintenance and a focus on goals. However, if you’re living paycheck to paycheck, it’s not the best strategy for cutting expenses. A reverse budget is more for someone who has a buffer between their income and expenses and wants to make sure the big things are taken care of.
The 50-20-30 Budgeting Method
The 50/20/30 method is a popular budgeting formula that allows your finances to be easily broken down into three different categories.
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 for savings (including debt payoff).
- Use 30% of your income for anything you want.
The 50-20-30 method is more flexible than Ramsey’s recommended budget allocations and can be ideal for people who place a higher priority on personal fulfillment, since 30% of your income gets allocated to personal spending. In contrast, Ramsey’s budget template only allocates a combined total of 13% to lifestyle, personal and miscellaneous spending.
At the same time, this type of budgeting may not allocate enough of your income to debt repayment if you have high-interest obligations, and it may not provide firm enough guidelines if you’ve struggled to keep your spending under control in the past — two areas where Ramsey’s recommendations can be extremely helpful.
Click here for a complete guide on the 50-20-30 budget.
The Cash 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 envelope system is a cash-only budgeting method that works as follows:
- Determine your household’s net income.
- Decide on a fixed dollar amount for each budget category.
- Create envelopes for each budget category.
- When you get paid, withdraw the cash and place it into the envelopes.
- Pay for everything in cash, knowing that you can only spend whatever is inside each envelope.
This budgeting method is a bit more tedious than the others, but it absolutely has the power to change your spending behavior.
If it seems impractical or too involved, consider just using the envelope system for the two or three budgeting categories that always seem to get out of whack.
Dave Ramsey’s Household Budget Percentages: Summary & Final Thoughts
We all know that personal budgeting gets a bad rap. But if you want to improve your financial situation, 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.
Is this referring to net salary or gross?
It’s net, or total take home pay after tax.
That’s not confusing.
R.J. – a recommended savings rate of ~15% is associated with gross pay, not net pay.
You are probably getting confused because Dave usually makes a house expense recommendation based on take-home (after-tax) income.
I think this graphic needs some updating.
were does banking fees go?
I would insert those into the misc category.
I would think most Ramsey followers would not even consider having any accounts with fees of any kind. (Well except his own app, of course)
Perhaps I’m mistaken, but I thought the recommended percentage for retirement saving was 15%, not 10%? Of course, that wouldn’t include additional savings you may be putting away each month. Thanks!
You’re right! Not sure when they were changed. Will shortly update the article and graphic.
I’m also self-employed. How do you account for taxes in your budget?
I’d base my budget on my net take-home pay.
What I do specifically is take a generous amount off the top for taxes from my business checking account before I pay myself, e.g. between 25 and 30%. That money then sits in a separate savings account just for taxes.
After finalizing taxes for the year, any money that’s left over in that tax account I consider a bonus.
I am wondering how the recommended household budget percentages change for those of us who are already retired. My husband and I are recently retired and are attempting to live within our SS and pension incomes, only using our t-retirement savings for extras like bigger travel plans. For example, we do not have a house payment, so that recommended 25% budget does not apply. However, now that we are 65, we pay out of pocket for additional healthcare that Medicare does not cover. Are there recommended percentages or do we just need to figure that out ourselves?
Recommended budgeting percentages are ideal for the typical household that still has a house/rent payment, car payments, etc…
As you said, your best bet is to figure out a budget for yourself best on your situation. A good start is to analyze where you’re spending now versus how much income you have coming in.
I’m another Susan, retired now for over 12 years. I kept precise accounts my entire life, adjusting my budget through the years as circumstances changed (when I’d have a significant raise, when the mortgage was paid off, etc). Several years into retirement, I realized a budget wasn’t really very meaningful anymore because my regular monthly expenses (excluding Medicare supplement!) were far less and spending on such things as travel were much more. Basically now I just stay careful not to overindulge, and I do compare each month’s balance with the previous one as a guide. I haven’t touched my IRA, living on my pension and social security just fine, though I expect when I replace my car I will take that expense from the IRA. Enjoy your retirement!
I would like to see an allocation chart from Ramsey Solutions aimed at the average Social Security income only recipient in America… $1500 to $1600/mo. minus Medicare.
I’m not sure this is right. The numbers add up to 100%, but for Savings, Ramsey recommends 15% of your gross pay, so there’s no room for any taxes here
Good point. I tried to dive in a bit more on his site, and he doesn’t clarify.
Since most are W2 employees, they don’t necessarily save for taxes. So, I think what he’s trying to do here is to advise to save 15% of gross income in a 401(k) and then budget what’s leftover from net pay.
Of course, if you’re self-employed, you need to save for estimated taxes, which would create a separate budget category.