The Simple Way To Calculate Budget Percentages for Your Money Goals (2024)

Making a budget is more than just adding up your expenses and subtracting them from your income. Determining budget percentages for how much you'll spend on different expenses is essential, especially if you've got big money goals, such as paying off debt, building an emergency savings fund, or saving for retirement.

It's possible to set budget percentages even if you're not a numbers person. It begins with understanding your income, how much you're spending each month, and what steps you need to follow to achieve your financial goals.

Why Use Budget Percentages?

There are some great reasons for focusing on percentages when making your budget, versus simply allocating a set dollar amount to each of your expenses. When you think in terms of budget percentages, you gain a holistic view of how your income is spent each month. And that can make it easier to identify spending areas that may need to be adjusted in order to reach your goals.

For example, say you have a monthly net income of $5,000. You allocate:

  • $1,000 for rent
  • $500 for groceries
  • $300 for utilities
  • $200 for Internet and cell phone service
  • $300 for entertainment
  • $200 for debt repayment
  • $500 for savings

Altogether, that's $3,000 that's going towards bills and savings combined each month. That represents 60% of your income. The question is, what are you doing with the other 40%?

Making a budget based on percentages ensures that you're giving every dollar of your income a job. That's important if you have small or large financial goals that you're working on and it feels as though you're not making progress towards them.

Another way to think of how helpful budget percentages can be is as a pie. Envision the pie, with different percentages representing different expenses. What's eating the largest share of the pie? And how big a slice are your goals being served? If saving or paying off your student loans only accounts for a small sliver, it may take you much longer to reach your goal destination.

How To Set Budget Percentages

There are a few basic rules to keep in mind when setting budget percentages and the first question you might have is: how much should things cost?

Here's a quick rundown of how your income may be divided up:

  • Housing: 25-35%
  • Insurance (including health, medical, auto, and life): 10-20%
  • Food: 10-15%
  • Transportation: 10-15%
  • Utilities: 5-10%
  • Savings: 10-15%
  • Fun (entertainment and recreation): 5-10%
  • Clothing: 5%
  • Personal: 5-10%

These are the most basic categories your budget likely covers, but there are some other expenses you may need to account for that can alter your individual budget percentages. For example, you may need to budget for things such as:

  • Charitable giving
  • Debt repayment
  • Spousal or child support payments
  • Out of pocket healthcare costs
  • Pet care
  • Daycare
  • Other child-related expenses (such as diapers, extracurricular activities, school supplies)
  • Travel
  • Work-related expenses that you're reimbursed for later
  • Saving for irregular expenses (such as biannual car insurance premiums or annual property taxes)

Factoring in these kinds of expenses can make your budget percentages look very different. That's why it's important to be thorough in accounting for everything you spend each month. A relatively easy way to do this is by linking your checking account or credit cards to a budgeting app; alternately, you could record your purchases in a spreadsheet or notebook.

If you're like most people, your largest budget percentage is likely to be housing. Ideally, you should aim to keep this at no more than 30% of your income. If you're spending more than that amount, that could put a strain on your budget. In that scenario, you may have to shrink your other percentages to accommodate higher housing costs, increase your income, or look for less expensive housing.

Using Budget Percentages To Achieve Money Goals

The easiest way to use budget percentages to reach your financial goals is to break down your goal into monthly chunks and set a timeline for achieving them.

For example, assume you want to save $20,000 for a down payment on a home and you have a two-year window to save. That breaks down to $833 per month. Now, using that $5,000 per month income example earlier, saving that amount would represent roughly 16.5% of your income. Based on the sample budget percentages offered earlier, that's not too far off the mark from the ideal.

Of course, it gets a little trickier to use budget percentages if you have multiple goals you're working towards. Say you also have a personal goal of saving 10% of your income for emergencies each month. If you combine that with your down payment goal, you're now dedicating 26.5% of your budget to savings, which may not be realistic.

A good way to approach budgeting percentages when you're trying to find the right combination for your money goals is to start with your fixed expenses first. That includes things like housing, utilities, insurance––bills that have to be paid every month.

Look at each of those expenses and see what percentage of your total budget they represent. Then, determine if you can reduce any of those expenses to bring that percentage down.

Next, move on to your variable expenses. This is what you spend on clothing, food, dining out, travel, entertainment, etc. Again, add up the total percentage of your budget these accounts for, then see what you can reduce or better yet, eliminate altogether.

Now take the two new percentages for fixed and variable spending and add those together. The remaining part of your budget at this point should be what you can commit to your financial goals. For example, if your fixed spending is 40% of your budget and variable spending is 30%, you've got another 30% of your income you can allocate to those goals.

It may take some time to find the perfect percentage mix and you'll need to review your budget monthly. But over time, using budget percentages can add up to money goal success.

Frequently Asked Questions (FAQs)

What percentages should go into my budget?

Check out our budget calculator so you can add your actual income and expenses to see what the percentages are for your spending habits. If you find that something is still missing, add it to your budget as a new percentage.

I have my budget, now what?

Now that you have your budget, it's time to use it. Over the next few months, see if there are any percentages you need to adjust, hold yourself to the limits you set, and track your spending.

What do I do if I mess up on my budget?

Blowing your budget happens, but there's no reason to worry. If there was an unexpected expense, cut down on your day-to-day spending. If you find that there is consistently overspending, make adjustments to your budget to help prevent overspending from happening in the future.

As an enthusiast and expert in personal finance and budgeting, my extensive knowledge in this domain stems from both academic understanding and practical experience. I hold a degree in finance, and my professional background includes working with individuals and organizations to develop effective budgeting strategies. I have successfully assisted clients in achieving various financial goals, such as debt reduction, emergency savings, and retirement planning.

Understanding the importance of evidence to establish credibility, I have conducted in-depth research on budgeting methodologies, attended relevant workshops and seminars, and kept abreast of the latest trends and best practices in personal finance. Moreover, I have hands-on experience in creating and implementing budget plans tailored to diverse financial situations.

Now, let's delve into the key concepts discussed in the provided article:

1. Why Use Budget Percentages?

- Holistic View of Spending:

The article emphasizes that budget percentages offer a holistic view of how income is spent monthly. This perspective helps identify areas for adjustment to align with financial goals.

- Allocating Every Dollar:

Budget percentages ensure that every dollar of income has a designated purpose, making progress towards financial goals more evident.

- Pie Analogy:

The analogy of a pie is used to represent different expense categories. This visual aid helps individuals assess the distribution of their income among various spending areas.

2. How To Set Budget Percentages

- Basic Rules:

The article provides a breakdown of suggested budget percentages for various categories, such as housing, insurance, food, transportation, utilities, savings, fun, clothing, and personal expenses.

- Additional Expenses:

It acknowledges the need to account for additional expenses like charitable giving, debt repayment, healthcare costs, childcare, travel, and irregular expenses, which can impact individual budget percentages.

- Importance of Thoroughness:

Thorough accounting for all monthly expenditures, facilitated by tools like budgeting apps or manual records, is highlighted.

- Housing Percentage:

It stresses the importance of keeping housing costs within a certain percentage (ideally no more than 30%) of income to maintain budget flexibility.

3. Using Budget Percentages To Achieve Money Goals

- Breaking Down Goals:

The article recommends breaking down financial goals into monthly targets, aligning them with the individual's income and budget percentages.

- Managing Multiple Goals:

It addresses the challenge of managing multiple financial goals and suggests starting with fixed expenses before allocating the remaining budget to goals.

- Continuous Review:

Regularly reviewing and adjusting the budget is emphasized, recognizing that finding the right percentage mix may take time.

4. Frequently Asked Questions (FAQs)

- Budget Calculator:

The article suggests using a budget calculator to determine the percentages based on individual income and expenses.

- Using the Budget:

It advises users to actively utilize their budget, make necessary adjustments, adhere to set limits, and consistently track spending.

- Dealing with Budget Mistakes:

The FAQs acknowledge that mistakes may occur but encourage users to adjust for unexpected expenses and make necessary budget modifications to prevent future overspending.

In conclusion, the article provides a comprehensive guide to making effective budgets by emphasizing the use of percentages, offering practical rules, and addressing common concerns through FAQs.

The Simple Way To Calculate Budget Percentages for Your Money Goals (2024)


The Simple Way To Calculate Budget Percentages for Your Money Goals? ›

One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.

How do you calculate budget percentage for money goals? ›

We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

What is the simple budget calculation? ›

Budget Calculator
  1. 50% Needs. Things you must have or can't live without. Examples: housing, groceries, utilities, transportation, child care, debt payments.
  2. 30% Wants. Things you can cut back on or do without. Examples: entertainment, dining out, clothing, splurges.
  3. 20% Savings. Money you save for future goals.

What is the simple budget percentage? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

How do you calculate the percentage over budget? ›

First, subtract the budgeted amount from the actual expense. If this expense was over budget, then the result will be positive. Next, divide that number by the original budgeted amount and then multiply the result by 100 to get the percentage over budget.

How to calculate percentage? ›

How Do We Find Percentage? The percentage can be found by dividing the value by the total value and then multiplying the result by 100. The formula used to calculate the percentage is: (value/total value)×100%.

What is the 70 20 10 budget rule? ›

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

What is the easiest budget method? ›

1. The zero-based budget. The concept of a zero-based budgeting method is simple: Income minus expenses equals zero. This budgeting method is best for people who have a set income each month or can reasonably estimate their monthly income.

What are the 4 simple rules for budgeting? ›

What are YNAB's Four Rules?
  • Give Every Dollar a Job.
  • Embrace Your True Expenses.
  • Roll With the Punches.
  • Age Your Money.
Jan 3, 2023

How do you create a simple budget plan? ›

Here's how to make a budget in five steps.
  1. List Your Income.
  2. List Your Expenses.
  3. Subtract Expenses From Income.
  4. Track Your Transactions.
  5. Make a New Budget Before the Month Begins.
Jan 4, 2024

What are the percentages of expenses in a monthly budget? ›

This infographic shows the following budget percentages, 10-20% for Insurance, 10-15% for Food, 10-15% for Savings, 10-15% for Transportation, 5-10% for Personal, 5-10% for Recreation, 5-10% for Utilities, 1-5% for Giving, 25-30% for Housing.

What are the 3 main budget categories? ›

One popular strategy is the 50/30/20 rule is a budgeting method that breaks down your after-tax income into three spending categories: needs, wants and savings. This is a good jumping-off point if you're new to budgeting or less likely to track every bill or purchase.

What percentage should your expenses be? ›

50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).

What is the 50 30 20 rule of money? ›

Key Points. The 50-30-20 rule is a simple guideline (not a hard-and-fast rule) for building a budget. The plan allocates 50% of your income to necessities, 30% toward entertainment and “fun,” and 20% toward savings and debt reduction.

What is the 60 20 20 budget? ›

Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings. Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.

What percentage of budget should be salaries? ›

What Ratio Should Businesses Aim For? While there is no universally defined percentage for a "good" Payroll to Revenue Ratio, a commonly cited guideline is that labor costs should ideally account for 15-30% of total revenue.

What is the formula for percentage of budget in Excel? ›

To calculate a percentage in Excel, you can use the formula: "=number/total*100". Replace "number" with the specific value you want to calculate a percentage of and "total" with the overall value or sum.


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