Last time, we taught you how to work with your income to maximize your cash flow using the 50/30/20 hand in hand with our budgeting system in Spendee. Are you ready to take your budgeting knowledge to the next level?
You already know that the first step of successful personal finance management is to save or invest at least 20% of your net income! 💰 We want to show you how to allocate your net income even more precisely.
Using Budgets in Specific Categories
After we’re left with the remaining 80% — how exactly do we use it? Is it enough to know that 50% of net income should go for necessities & 30% for personal purchases? Well, if that works for you, it’s enough. But maybe you find yourself struggling with the precise allocation by spending category. Lets see what should fall into essential and non-essential spendings & what are the recommended percentages to set up a budget! 💸
We understand that this type of allocation is greatly dependent on the location of your residence and other region-specific expenses. Please take this into consideration, as these are just general recommendations to inspire you, and which you can adjust to suit your needs.
Mandatory Expenses (50%)
These expenses are tied up with your needs — something you can’t imagine your daily life without.🙅🏼♂️ Of course, having a place to live and food to eat is not the only essential thing. Apart from that, we are all relying on other necessary bills to pay: let’s break them up.
Housing (20–35%) & Utilities (5–10%) 🏡
We can all probably agree that the biggest chunk of our income goes into this category! 😱 It’s also where you can easily spot if you’re living above or below your means. If you set a budget for these categories, you can track anything that you pay towards your accommodation. 🛁 It can be monthly payments, essential equipment or mortgage — whatever is required towards housing.
Food 🥐 (10–15%)
You have to eat, but you don’t always have to eat out! 🍽 We understand that everyone has different relationships with food — some take it only as a necessity, and for others it might be a variable spending for entertainment as well. It’s really up to you how you divide it! It’s recommended to keep 10% of your net income for food, however, if you know you enjoy eating out from time to time, you can use these 10% for your groceries, and track eating out expenses in the personal or entertainment sector. Whatever works for you!
📚 Recommended Readings:
Insurance 💊 (5–15%)
It’s clever listing all of your insurance plans in one place! 🚑 Whether it’s disability insurance, car insurance or health insurance (and there are many others!) you should know exactly how much you’re paying.
Healthcare 👨🏼⚕️ (5–10%)
Healthcare is way more variable than insurance — even though they have the same level of importance. Any prescriptions, doctor visits, medical devices or medical care should be included in this category. 👨🏼⚕️
Transportation 🚘 (5–15%)
It doesn’t matter where you live, it’s essential to use some kind of daily transportation to get where you need to go. Practically, you can include all the spendings tied to daily transportation — such as your public transportation pass, car payments, tolls or maintenance costs. 🛠 Since we’re talking about essential expenses, it’s not recommended to use this budget for travel costs as well.
Personal Expenses (30%)
These expenses enhance your lifestyle, and cover any purchases or activities that aren’t necessary, but rather good to have. 🍀 It’s where you can save the most each month and use the remaining money for savings or next month!
This category is considered to be a lifestyle one, putting together all the personal care expenses. 💆🏼♀️ Some examples may include fashion, magazines, beauty products or even gym memberships. Because these are the variable spendings, you can decide what you consider as a personal expense and stick to it. 🛍
Entertainment 🎬 (5–10%)
Let’s be honest — life shouldn’t be just about paying utilities and going to work. It’s essential and healthy to spend some of your income for your entertainment and fun. ⚽️ These expenses include everything from concerts, books, video games, sports events, hobbies, vacations to subscriptions such as Spotify or Netflix. 🎧 It’s basically anything that helps you get through your free time & cheers you up!
Miscellaneous 🧩 (5–10%)
Well… this category is a safety net you’ve been looking for! Maybe you still haven’t categorized an expense, or you’ve already reached a budget from a different category. 🤷🏼♀️ Don’t worry, these last 10% is exactly what you can use to stay on track with your finances.
How do I start? 💪🏼
We understand that having so many categories and budgets might be too overwhelming! 🤯 You already made the first step — and it’s being aware of these general rules of division. As we mentioned before, these aren’t necessarily the exact percentages you’ll be going for — but it’s a great first step to figuring out what works best for you. 🥳 Want to know more about budgeting? Read more at: Budgeting 101 — Understand Budgeting and Start Making The Most Out of Your Money
Do you have a specific problematic category you’d like to keep track of? Start small and create a budget — we’ll help you master it.