Allocate Your Spending, Part V of Budgeting….

incomeAfter doing what you can to increase your income and decrease your expenses, it’s time to take a closer look at the expense part and see if you allocate your spending it in reasonable amounts. Because, really, when it comes right down to it, you may not know what you should be spending on your monthly expenses.  It’s hard to make a realistic budget if you don’t have a good knowledge of how your money ought to be distributed ideally.  Here’s a suggested way to allocate your spending:

Savings:   10% (and always, always pay this to yourself first!)
Housing:  30%
Transportation:  15%
Food (including eating out): 15%
Debt Payments: 10%
Miscellaneous:  20%

What if one is higher than it should be?

These percentages are really absolute maximums. Since they total up to 100%, clearly, if you spend more one one category, you will have to spend less on another, which is probably not a good thing.  And if you spend less than 30% on housing, you really should take that money and put it toward debt payments or increase your savings, not decide it’s okay to spend more on food.  Looking at your previous examination of your income and expenses, compare those with the suggested percentages here.  Do they match up, or even come close?  If not, it’s time to reallocate your spending.

Make a plan using your income and expenses to get somewhat closer to this distribution. Obviously, you aren’t going to be able to change all your percentages overnight.  You will have to work toward the ideal amounts, perhaps inching closer to them every month.  Then, make a chart of how much should be spent each month in each category, using your own income as a guide.  You should post this prominently in your home.

How to use this new chart?

This new chart will become your monthly household budget.  You’ll also want to post how much debt you have and make a plan to pay it off as quickly as possible.  And in fact, in the next section, we’ll talk about how you can do exactly that!

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