If you need to improve your financial situation one of the first places to start is develop a plan for how you want to spend your money. There are several tools and types of budgets but sometimes it is best to think of your monthly net income as pie, you have a limited amount of money and will have to divide it each month to “feed” all of your saving and expense needs. There are several different ways to divide your income ‘’pie” and for this example, we are going to go with a minimalist approach that focuses on driving more to savings or debt reduction.
There are the 10 slices of your Pie. The percentage each slice should be of your net monthly income. Important note, everyone has different expectations and requirements. This tool is really about bringing discipline to your spending and finding places to change how much you spend or increase your savings. The percentages are suggestions with a focus to decrease spending and increase savings.
This includes all rent, mortgage payment, utilities, taxes and insurance. Utilities would gas, electric and any cost for services like sewer and garbage disposal.
Includes all food costs including school lunches, groceries and eating out unless you include that in entertainment.
Costs included in this category include loan payments, insurance, maintenance and gas. This can include public transportation costs too.
For this category include all of your other loan payments including student loans, credit cards and personal loans. This is also where you will find the money for your emergency fund savings.
This is your internet, streaming services and mobile phone plans, this is an area that can be tough to keep at 3% depending on your income.
This can be eating out, going to movies, concerts or sporting events and would include all the costs associated with these activities.
Personal Care/Clothing (5%)
This includes haircuts, need clothes and other personal care items such as health and beauty. Also, cleaning supplies are included in this slice of the pie.
This would be your life and disability insurance as property and auto insurance is captured above and health insurance would not be part of your after tax net income.
Charitable Giving (5%)
This is what you give to schools, family and religious organizations and your own personal decision for this category is extremely important.
This is the catch-all category for those expenses like sports fees, gifts for others and unexpected expenses that don’t fit another category.
As mentioned earlier, these percentage are just starting guidelines for you to establish your own budget pie. Knowing where your money is going and how much to each of these categories can be enlightening and provide a framework to make the changes you need to achieve your goals. If you have a slice that is significantly larger than the suggested, it is a place to consider if you should be spending that much. Also, if your income is reduced, you can have an idea of how much you might need to reduce your spending in each category.
Download or print Budget Pie Worksheet and Budget Pie Graph