After making the decision to budget, there is always the question of how much should you allot for each category. That was my big question. I wanted to know if my budget was reasonable or unreasonable when compared to the average American household, so I looked at the percentages the average American was paying for food, housing, savings, and transportation. Then I compared my budget. I found in some areas, I needed to decrease my budget, but in other areas I was well below the average American. How do you compare to the average American budget? Lets find out.
The resource I am using for percentages is one of many, but when I looked at other resources the numbers only differed by a few points. So you can raise the percentages a few points or lower it and you will be in the same ball park.
First we are going to look at housing. Housing includes mortgage or rent, utilities, insurance for mortgage or rent, and homeowner repairs. Most taxes and insurance on the home are usually rolled into the mortgage payment, but if not, you’ll have to add it too. The suggested housing percentage is 30% of your monthly income. My household is at 27%. It’s only a 3% difference, but I will take it. I got to this number by totaling the monthly housing cost and dividing by our monthly net income (take home pay).
Second is auto and transportation. This category consists of auto payment, insurance, gasoline, oil changes, license, parking, tolls, registration and repairs. The suggested transportation percentage is 15%. My percentage is at 18%. My husband’s new car pushed us up a bit. However, I don’t have a car payment. I have a mutual fund car account we pay into every month to pay for a newer car when it’s needed. We drive our cars for a long time, so we can save up quite a bit before getting a newer one. This allows us to make interest on our money instead of paying interest on our depreciating vehicles.
The Third category and the most challenging for me is Household items. This includes food, (eating out is included here too), cleaning and household supplies. The suggested household items is 15%. The biggest challenge for me is the food part. I love to cook and bake and that costs a little more, so we work hard at trying to stay under that 15% mark. I eat organic meats, so when they go BOGO (but one get one free), I stock up my freezer and that helps a lot. I am not a couponer. Most coupons I come across aren’t for foods I buy, so I shop the grocery store ads. Our local grocery store has lots of BOGO’s I can take advantage of each week. I follow budgeting groups to see how others save on groceries and a lot of them shop Aldi grocery stores. From what I understand they have quite a few organic products too.
Okay the three categories above should not exceed 60% of your net income. For example, if you spend 40% on housing then food and auto together cannot exceed 20%. What did you come up with? Mine is at 60% so I would say that I am right on target. This really gives you a good view of what you need to cut back on and what you could spend a little more on if you choose too. The second half of this exercise is the savings, debt, and miscellaneous part.
Savings are funds saved from net income (take home pay) to cover emergencies for household, auto, medical, and dental expenses, insurance deductibles, tickets, down payment on large purchases, or vacations, etc. The suggested savings amount is 10% or more. Since I already have a fully funded emergency fund(3 to 6 months of expenses), I added my Roth IRA here. That brings me to 15% of my net income. In this case, going over the set percentage is a good thing. My husband’s 401K is not added in because it’s taken out before we get the net income amount. I like Dave Ramsey’s advice to have a fully funded emergency fund before contributing to a Roth IRA. I followed this advice in my own financial practices and believe me, it has served me well!
Next comes debt and charitable contributions. Debt is anything you owe to a company,
person, or family member. Your mortgage is not included here. Charitable Contributions refer to any amounts given to church or other non-profit organization. The suggested percentage for debt/charitable giving is 15% or less. Our charitable contributions are around 10%.
Last but not least, and again, a challenging category is miscellaneous. These are extra expenses like phones, internet, cable TV, gifts for birthdays, weddings, Christmas, etc. haircuts, nails, facials, entertainment, basically anything you spend money on monthly that don’t already fall into one of the above categories. The suggested percentage for miscellaneous is 15%. This category is challenging because there is always something to spend money on, so I set an amount in my budget and refuse to go over. I look on my calendar to see what I have coming up for the month and factor that in. It does fluctuate month to month, but we stay between 9 and 12 percent. I am always figuring out ways to cut this category. We recently decided to let go of cable. We are streaming now for less than half the cost, and we did get to keep Turner Classic Movies (my husband’s favorite). We are streaming through Direct TV Now which has TCM on their lowest package. That has helped keep our miscellaneous category lower. What are some ways you keep your miscellaneous down?
Okay, basically you want to reach 100% of your income going to each of these categories. My last 3 categories came out to 37% of my income, and since my top percent was 60% I ended up having an extra 3% to add to savings. Because I have paid off all my debt except for my house I have a pretty good bit going to savings. Now that was not always the case though. We struggled and made sacrifices to keep our money. For instance we drive old cars. We keep them well maintained and they are great reliable cars. We also don’t go to movie theaters very much, maybe once a year. We rent from Redbox instead and pop popcorn at home. That’s some serious savings considering how much concession cost. We also cook at home a lot more than the average American. (American’s now eat 50% of their food outside the home). We try to keep our house organized too. Organization alone can save thousands of dollars because you aren’t constantly buying stuff you forgot you already have. I was great at stocking up, but I would forget where I put things, thought we were out, and had to go buy more. I realized how often I was doing this when I would find my supplies and go “Oh man, I just bought that!” So I got organized and I don’t keep buying things I don’t need. There are millions of different ways to save money. America’s Cheapest Family is one of my favorite books for money saving tips.
I hope you found this Average American Budget feature interesting and encouraging. It definitely helps to have some guidelines when it comes to budgeting. Now, you can make it your own by increasing or decreasing categories, and remember, as long as it all comes out to 100% of your monthly net income you’ll be good. Also remember that this is a monthly budget. You have to stick to it and if you spend more that 100% one month, you’ll need to cut it the next month.
Left Overs: I wanted to throw in the percentages my family spends, so you could not only compare America’s Average, but a real person’s too. I hope this helps you create a budget that benefits you and your family. The goal is to spend less and save more for our families’ future. What motivates me is leaving an inheritance for my son. I think it’s important to leave the next generation better off. Eventually, your family’s wealth will increase with each generation. However in order for this to work, you have to teach your kids financial responsibility or all your hard work will be lost. Find whatever motivates and drives you to put your family in a better financial situation and use it as fuel for the journey. Your income is your tool to building wealth, and you will get there one pay check at a time.
Need help teaching your kids about financial responsibility? Check out daveramsey.com for great resources like: Financial Peace Jr. and Smart Money Smart Kids.
Happy Full Plate Friday!!!!