Creating a budget should be one of the first steps you take when you’re working towards financial freedom. Unfortunately, when you’re new to budgeting, you may not know how to determine budget percentages that will make sense for your financial situation.

We had the same problem when we started but we figured it out through trial and error. You don’t have to do that though because we want to give you some quick tips to get you started.

These budget percentages are just suggestions though, you’ll have to determine what works for you and what doesn’t.

Create a monthly budget

By this point, you should already have your monthly budget in place. If not, stop what you’re doing and create a budget right now. Our post called, “How to create a monthly budget in less than 20 minutes” will guide you through the process and provide you with a FREE budgeting spreadsheet to make things easier.

One way to determine your budget percentages is to look into your bank accounts and credit cards and calculate an average for all of your spending. Figure out what you’ve been spending money on and then adjust those amounts to something reasonable for your budget.

Once that’s done, spend the next 3 months tracking all of your expenses and figure out if the amounts you’ve set make sense. You may spend too much in one category and too little in the next.

That’s perfectly fine, just continue adjusting as you go.

Most common budget percentages

Another way to determine the best budget percentages is to figure out what other people are already doing. The Bureau of Labor Statistics recently did a survey of American households and figured out how most people spend their money. Their data is based on an annual average of $57,311 worth of expenses.

*Cash Contributions = Giving

Housing

As you can see, 33% of an average family’s expenditures are spent on housing. The U.S. Department of Housing and Urban Development recommends keeping housing costs below 30% to avoid feeling cost burdened by their residence.

This is the main reason why we decided to move into an RV for 9 months.

Transportation

Transportation costs are the next highest category coming in at $754 per month or $9,049 per year. This includes finance interest charges, gas, repairs, maintenance, public transit fees, etc.

While we were paying off debt, we actually sold one of our cars and I started riding my bike to work on a semi-regular basis to dramatically cut these costs.

Food

13% of the average household budget is spent on food, which can be further broken down into $4,049 of food at home and $3,154 on food away from home.

A quick way to decrease these expenditures is to find more opportunities to cook at home and to bring your lunch to work. Eating out and not planning meals can add up quickly.

To figure out what these percentages would be in your household, take the budget percentages from the chart above and multiply them against your monthly household take-home pay:

Example: 33% x $6,000 take home pay = $1,980

Be wise with your budget

One thing we’d like to make absolutely clear is that these numbers are just suggestions based on the National average. We don’t believe that there are any rules that say you have to spend a certain amount of money in each category but these budget percentages should provide a good starting point.

Compare your current spending to the average and find places where you can make reductions. We saw a similar chart posted by a popular personal finance guru that said you should follow the budget percentages they listed without the suggestion of reducing any of them.

If we had listened to their advice, we would still be $100,000 in debt because we wouldn’t have had any money leftover after following their budgeting advice. There are also other budgeting methods you can consider (i.e. the 50/20/30 budget).

Remember folks, you need to do what works for you. The most important thing is that you create a plan, follow it and make as much progress as you can!

$tay Wealthy Friends,

— DJ