Now that you’ve gone through the entire process that it takes to properly create a budget, the common question I get asked is ‘how much should you have budgeted for each particular category?’.
Today’s post is geared toward giving you some direction, but I will start by saying that this budget might not work for everybody. Your expected lifestyle and where you live have a lot to do with how your budget looks.
Somebody living in the midwest is going to have lower expenses than somebody living on the coast. Likewise, a family making $20,000/year is going to have a vastly different budget than somebody making $100,000/year.
The important part is understanding the principles I’ve discussed throughout this series and implenting them into your life.
The budget I’ll detail is what I typically see in a 4-person family: 2 adults and 2 children. For sake of ease, I’ll assume the children are out of diapers and going to school (so there is no daycare cost).
Giving: $0 / $400
Mortgage or Rent payment: $1,200 / $900-1000
Gifts (Christmas, birthdays, etc.): $100-200 / $50-75
Life Insurance: $0 / $100
Medications/Co-pays/Dental/Vision: $0 / $50-75.
This doesn’t include health insurance as I’m assuming that’s being taken out of your paycheck. This is just an extra amount to save in the non-monthly account to cover “life” when it happens and to cover normal doctor/dental visits.
Blow Money (Spending $$ for married couples): $0 / $100 ($50/each)
Children’s Activities: $75-100 / $25-$50
In the average American’s scenario I find that eating out, lunches, cable television, cell phones, and car payments are the things that are hindering their ability to make ends-meet.
The reason why the normal American family is able to pay their monthly bills (and doesn’t see a negative $260 budget) is because they don’t save for the Non-Monthly expenses that I have listed.
Most people don’t save for house upkeep, gifts, car repairs, car tags/registration/tax, medical expenses, or childrens’ activities. So if we took those things out of the budget, then they’d have some sort of disposable income. However, when those expenses come due (because they’re not a matter of if, but when) they’d have to go into debt to cover them.
In my scenario I did increase income (which obviously makes things easier), but I also added giving, life insurance, and medical expenses, WHILE ALSO being able to fit in all of the non-monthly expenses and still maintaining a disposable income.
The budget above just discusses the 4-Walls and it doesn’t include any debt. I racked my brain trying to figure out how to detail what I normally see when it comes to debt but I came to one conclusion: there is no “normal” or “average.”
All I know is that everybody has debt: student loans, medical bills, payday loans, credit cards, personal loans, lines of credit, etc. So instead of listing all of the various types, I think just an average monthly payment amount would suffice.
Average Monthly Debt Payment: $300-700 / $0
In the scenario I recommended above, a family could still do everything I detailed while also covering $300/month in debt payments. Furthermore, they’d have $145 in true disposable income!
Sure, their “additional” progress would be limited, but they’d still be able to cover all of their bills/lifestyle expenses every month, save for expenses that would be coming up throughout the year, and also make some extra progress on their debt.
5 years ago my personal budget looked nothing like what it does now.
There were many rough days and a lot of stubbornness that had to be broken. We’ve had our monthly disposable income be as little as $10 for awhile.
Over time however, that started to change. Financial peace and success led to more sacrifice which in turn led to greater success and change.
I will state that there is ZERO chance our budget would succeed if we had car payments.
Eliminating cable (added Netflix) and canceling our internet on our cell phones also enabled us to start making ends-meet.
In addition, our behavior change over time and our ability to limit gifts ($40/month), eating out/entertainment ($90/month), clothing ($50/month), and groceries ($280/month) has allowed us to get a grasp on our financial lives and pay down debt while also preparing for future expenses.
The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
In accordance with FTC guidelines, we disclose that we have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.
Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.