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Need help setting up a budget – look to what others do

Have you finally decided it’s time to make a budget or at least get your some of your expenses under control?  Well, one of the first questions you should have is how much should be allocated to each expense area.  The best way to answer that question is to use what others are spending for each type of expense and build your budget from that starting point.
 
Probably the best place to start is to determine the budget categories you will use in your budget. For most people getting started with a budget,  it helps to make seven basic categories:
  1. Housing -  rent or mortgage payment including taxes and insurance
  2. Utilities including gas, electric, internet, cable, etc.
  3. Transportation – including car payments, gas, insurance, bus passes, etc.
  4. Food & entertainment – including groceries, dining out, sports events, kid’s sports, etc.
  5. Other stuff – clothes, gifts, charity, etc.
  6. Savings – emergency fund, education, vacations, new purchases, etc.
  7. Retirement 

With a typical household family of 4, the budget pie will have the following allocations of after tax income:  
  • Housing at 24%,
  • Food & Entertainment at 20%,
  • Other Stuff at 16%
  • Transportation at 14%
  • Utilities at 10%
  • Retirement at 10%
  • Savings at 6%. 

Student loan debt, credit card debt and other miscellaneous debt items were left off intentionally because the above is our ideal budget.  The funds for the items outside our ideal budget have to come from one of the seven categories in our ideal budget.  So your budget pie might look different and have an 8th category but it comes from one of the other slices, not a bigger pie.
 

Setup a simple spreadsheet using these seven categories and see if your current spending is close to the ideal budget allotment.  This will provide a very good starting point on what your budget should look like.  Everyone is unique and the allotments will vary but this starting point will help you balance your budget much easier than basing a budget off of what you are currently spending.  For example, you might find that your transportation category is much higher than the typical family, if so, that is an area you probably need to adjust.
 
In the end, your ideal budget should be a goal that you are working towards and you should find a budget that works for your situation. 


Posted: 1/27/2014 with 0 comments

Categories: Budgeting, Money Matters, Spending



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